Financing for energy efficiency investments - Smart Finance for Smart Buildings

Date de clôture : 10 sept. 2020  
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Energy efficiency is not yet considered as an attractive investment by the financial sector which limits the possibility to use external private finance on top of equity of project owners and available public funding. The lack of statistical data on the actual energy and costs savings achieved by energy efficiency investment projects, as well as on payment default rates, results in financial institutions attributing high risk premiums to energy efficiency investments.

Energy efficiency represents high transaction costs for rather small investments, which is not financially very attractive. Technical and legal standardisation is highly needed at all steps of the investment value chain in order to simplify transactions and increase the confidence of financial institutions. The lack of standardisation of projects also prevents securitisation of energy efficiency assets (loans or equity) so that financial institutions are not able to refinance their debt on the capital markets^[1].

Whereas energy efficiency investments are usually expected to be paid back exclusively through the reduction of the energy bill, there is increasing evidence that non-energy benefits play a key role in the decision to invest in energy efficiency. This includes for instance increased building value, lower tenant turnover or vacancy rates etc. These benefits need to be quantified through data collection and monetised in order to evolve the parameters used by financiers to assess an energy efficiency investment.

Moreover, there is a need to set up innovative financing schemes at regional or national level in order to create the conditions for adequate supply of private finance for energy efficiency investments. Innovative financing schemes for energy efficiency aim to progressively maximise the leverage ratio of public funds to private finance. This is in line with the Smart Finance for Smart Buildings initiative that aims at using public funds more effectively.

Access to private finance for energy efficiency and integrated renewables remains challenging. One obstacle is the lack of common understanding of the topic between government, public sector, private sector, and the financial sector. The Smart Finance for Smart Buildings initiative^[2] has proposed a comprehensive approach based on the more effective use of public funds, aggregation and project development assistance, and de-risking. However, this approach still needs to be rolled out and shared with all stakeholders at the national level. The Commission is piloting this through the Sustainable Energy Investment Forums initiative since 2016.

a) Mainstreaming energy efficiency finance

Proposals should address at least one of the following issues:

• Development, demonstration and promotion of frameworks for the standardisation, aggregation and benchmarking of sustainable energy investments. This could include for example, but not exclusively, labelling schemes, project rating methodologies and risk assessment tools, standardised legal and financial structures of assets (loans, guarantees, energy performance contracts etc.) in order to develop securitisation for energy efficiency based financial products. Proposals integrated in a broader approach such as socially responsible investment should focus on the energy component;
• Capacity building for banks and investors at the national and local level, in particular on underwriting sustainable energy investments;
• Gathering, processing and disclosing large-scale data on actual financial performance of energy efficiency investments, in order to create a track record for energy efficiency in different sectors (buildings, industry, transport, etc.). Proposals should build upon or complement the work of the Energy Efficiency Financial Institutions Group (EEFIG) e.g. the De-risking Energy Efficiency Platform^[3] and the Commission’s Action Plan on Financing Sustainable Growth (COM (2018) 097 final)^[4] and its follow-up initiatives.
• Further integration of non-energy benefits in project valuation, in particular in the building sector, leading to evolution of existing financial products or creation of new targeted products;
• Targeting institutional investors (e.g. public pension schemes) in order to increase the share of their funds invested in energy efficiency, or to develop specific funds or investment products. Supporting the integration of energy efficiency in portfolio management strategies for institutional investors and/or fund managers, including through re-definition of fiduciary duties;
• Exploring the impact of revised risk ratings and requirements for energy efficiency on financial regulations (Basel III, Solvency II).

b) Innovative financing schemes for energy efficiency investments

Proposals should address the development or replication and implementation of innovative financing schemes for energy efficiency investments. They can involve different types of organisations, ownership structures and financing models. These schemes should address the provision of finance as well as the structuring of demand, in particular at regional/national level, and target specific areas (e.g. energy-intensive industries, buildings etc.).

In this context, proposals should address one or more of the following points:

• Establishment of new innovative, operational financing schemes;
• Replication of previously successful solutions e.g. developed and implemented under various project development assistance (PDA) facilities under the Horizon 2020 and Intelligent Energy Europe programmes (including MLEI PDA or ELENA);
• Establishment of regional/national aggregators which are able to develop large (standardized) project pipelines;

Overall, proposals should justify how the proposed financing schemes complement already available funding and how they are tailored and innovative for the targeted regions and market segments; as well as clearly demonstrate the market potential, as well as business case and financial viability of the scheme (including investment sizes targeted, expected savings, transaction and management costs, expected returns etc.). In any case, proposals should include a clear action plan to communicate across Europe towards potential replicators.

The Commission considers that proposals requesting a contribution from the EU of between EUR 1 million and 1.5 million would allow this specific challenge to be addressed appropriately. Nonetheless, this does not preclude submission and selection of proposals requesting other amounts.

Proposals are expected to demonstrate, depending on the scope addressed, the impacts listed below, using quantified indicators and targets wherever possible:

a) Mainstreaming energy efficiency finance

• Number of financial institutions and other stakeholders reached as well as their potential volume of investment concerned;
• Frameworks, standardisation, benchmarking, standardised descriptions and data evidence of financial returns of energy efficiency investments agreed and accepted by the market;
• Higher allocation of institutional investments to energy efficiency; standardisation of assets enabling securitisation; development of a secondary market for energy efficiency assets (in million Euro of investment within 5 years after the end of the project);
• Investments in sustainable energy triggered by the project (million Euro).
• Primary energy savings triggered by the project (in GWh/year);

b) Innovative financing schemes for energy efficiency investments

• Delivery of innovative financing schemes that are operational and ready to finance energy efficiency investments;
• Regional/national aggregators with demonstrated/traceable capacity to set up a large-scale pipeline of (standardized) sustainable energy investments (in terms of number of and/or amount of investment);
• Investments in sustainable energy triggered by the project (million Euro);
• Primary energy savings triggered by the project (in GWh/year).

Additional positive effects can be quantified and reported when relevant and wherever possible:

• Reduction of the greenhouse gases emissions (in tCO₂-eq/year) and/or air pollutants (in kg/year) triggered by the project.

Clean Energy

[1]A successful example of standardisation enabling securitisation is the PACE market in the USA

[2]COM(2016) 860 final ANNEX 1 - ANNEX Accelerating clean energy in buildings

[3]https://deep.eefig.eu/

[4]COM (2018) 097 final: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52018DC0097