‘Europe needs to leverage more private capital into sustainable energy investments – and in particular, energy efficiency,’ says Marie Donnelly, Director (DG Energy) at the European Commission. ‘We can generate stable revenues through energy savings, as well as multiple socio-economic benefits such as local jobs, reduced energy imports and improved work and living conditions.’
Increasing the level of confidence between different stakeholders can help unlock the needed public and private finance sources and fill the energy efficiency investment gap.
The European Energy Efficiency Fund (eeef) was launched in July 2011 as a role model fund to demonstrate how sustainable energy projects can be financed by providing a solid track record of innovative financing solutions, with a strong replication potential. It finances and provides technical assistance to municipal, local, regional authorities and those acting on behalf of those authorities. The eeef operates in all member states of the European Union.
Growing the market for energy efficiency
A common challenge for energy efficiency investment funds is establishing a bankable project pipeline – and the first year of the eeef’s operation was no exception. Peter Coveliers, Chairman of the Management Board said:
‘2012 was characterized by building up a sustainable pipeline and closure of its first transactions’.
Overall, the energy efficiency market is still at its inception phase across Europe and projects in this field are developing at a moderate pace.
However, 2013 saw significant growth of both its investment and technical assistance portfolio. According to the eeef investment managers Deutsche Bank:
‘We consider 2013 as a breakthrough year for eeef, since we were able to invest in a variety of projects in Europe and achieve co-operations with a number of public authorities in Europe to facilitate project ‘creation’ in the market.’
In total, the fund has allocated some EUR 219 million (over a total of EUR 265 million) to 13 projects mostly in the energy efficiency sector.
And the way in which funds are allocated goes far beyond the traditional view of energy efficiency as a public good to be aided by grant funding.
Financial instruments for sustainable energy
So far, eeef have invested equity in combined heat and power (CHP) plants in France to ensure a clean renewable heat supply to French cities, acquired project bonds to finance a comprehensive energy efficiency upgrade in Bologna (Italy), entered into partnership with a financial institution to provide a green financing facility to the Romanian bank Banca Transilvania and, lastly, invested in project bonds issued by Bolloré to support a green transportation initiative for the cities of Paris, Lyon and Bordeaux (France). Eligibility criteria include a primary energy and C02 emissions saving of at least 20 % and projects should preferably be between EUR 5 and EUR 20 million.
The eeef’s Technical Assistance facility (EUR 20 million) has supported 20 projects. Technical assistance is funding to support public authorities in preparing their projects to investment-ready level – projects that will subsequently be financed by the eeef. The Spanish cities of Santander, La Palma, Marbella, Cordoba, Elche and Terrassa are using the technical assistance funds to develop projects in public lighting, building retrofitting, clean urban transport and photovoltaics sectors – and bringing in potentially attractive investment opportunities.
The Municipality of Ringkøbing-Skjern in Denmark used eeef technical assistance for decentralized district heating powered by biomass. This October, environmentalist Al Gore and former UN Weapons Inspector Hans Blix are set to debate issues of energy security at an event hosted by the municipality which is already half-way towards achieving its target of 100 % renewables by 2020.
In general, European Commission-funded project development assistance (PDA) has proven to be a highly effective tool, bridging the gap between sustainable energy plans and real investment through supporting all activities necessary to prepare and mobilise investment into sustainable energy projects. All PDA facilities require a leverage factor, i.e. each euro of EU funding must lead to a minimum level of investments in sustainable energy. The PDA facilities do not fund investments directly.
Public authorities may note that finance (EUR 0.5 – 2 million range) for sustainable energy including project development assistance will be available under Horizon 2020: in particular calls EE-19, EE-20 and EE-21. EUR 25 million was allocated to the 2014 call, and EUR 26.5 million of funding will be available in 2015. The announcement for the opening of the calls, for which the deadline is set at 4 June 2015, can be expected in the coming months. Project development assistance can support sustainable energy projects in accessing finance from the eeef.
Sustainable energy means business
The eeef has progressively established a solid track record of profitable investments (net profit registered in 2013) and will now actively look for additional senior investors to leverage further the EU contribution.
According to Marie Donnelly:
‘As climate and energy commitments are being reinforced…more than ever, we need more efficient use of EU and national expenses, with a clear leverage on private capital.’
Overall European Investment Bank lending for energy efficiency doubled to €1.5 billion between 2008 and 2009 and continued to grow to €2.3 billion in 2010. In general, energy efficiency considerations are being mainstreamed into all projects appraised by the Bank and it is extending its use of intermediated loans to high-street banks for energy efficient projects.
This should be of interest to national and regional governments who have an important role – through providing incentives and lower cost capital – in encouraging improvements to the building stock. In particular, the Energy Efficiency Directive obliges Member States to renovate public buildings, to introduce energy efficiency obligations and to establish financing facilities for energy efficiency measures.
Energy efficiency spending is not only as way to reduce energy consumption, but also as a path to job creation and economic growth. For each euro invested by government in renovation, up to EUR 5 can be returned to public finances. And big opportunities for energy efficiency spending are on offer through the European Structural & Investment Funds – with upwards of EUR 38 billion available for transition to the low carbon economy.
Innovative financing solutions represent a cost effective way of using public money, leveraging private capital for energy efficiency paving the way to the transition towards a more competitive, secure and sustainable energy system. With energy security high on the political agenda this coming winter, it’s high time to accelerate public and private investment in energy efficiency – the ‘world’s first fuel’.
 The eeef was initiated by the European Commission in cooperation with the European Investment Bank. The initial capitalization provided by the European Commission (€125 million) was increased with contributions from the sponsors European Investment Bank (€75 million), Cassa Depositi e Prestiti (€ 60 million) as well as the investment manager, Deutsche Bank (€5 million).
Photo Credit: eeef and Energy Efficiency Investment/shutterstock