Sustainable energy finance is rapidly developing, with many new instruments coming into play to accelerate the transition to a low carbon society. As key aggregators, local authorities are challenged to move beyond grants and work with financial institutions to set up financial instruments. Experience from the ManagEnergy community shows that it is more difficult to set up bankable project pipeline than to raise the finance – but the opportunities for local green growth are significant.
Energy performance contracting
Energy performance contracting (EPC) has been in place in the EU for over thirty years, but the market remains underdeveloped. This is the assessment of Volker Dragon, Senior Manager Industry Affairs with Siemens Technologies and Chairman of the European Association of Energy Service Companies.
‘We are still far away from the EU ambition to renovate the existing building stock by 2050 and the EPC market is stagnating at a low level.’ He observes that municipalities, especially smaller and medium-sized ones, are afraid of making mistakes because of the complexity level of the EPC contracts.
Despite the low EPC growth rate, Dragon is proud of some recently implemented projects with public authorities in Europe (as well as several more in the USA). The bulk of the EPC market in the USA is focused in the MUSH (municipalities, universities, schools, hospitals) sector.
What do local authorities need to deliver EPC projects? ‘Trust and ambition’, according to Lieven Vanstraelen, Co-CEO, Inerginvest, Belgium.
Read more about Energy Performance Contracting on ManagEnergy.net
Project development assistance
The European Commission has set up a series of facilities funding Project Development Assistance (PDA) to support ambitious public authorities - regions, cities, municipalities or groupings of those - and public bodies in developing bankable sustainable energy projects.
PDA is proving highly effective, with some projects achieving a 1:50 leverage effect in attracting further investment. It is also a flexible instrument, and can be used for building retrofit programmes, setting up low carbon investment funds, smart grids, and local sustainable energy production.
Notable successes include Solrod’s innovative biogas plant, the first project to receive funding from PDA Mobilising Local Energy Initiative (MLEI). ELENA-REDIBA in Spain achieved EUR 100 million investment during economic recession through aggregating building retrofit projects. More recently, the project Mobilising Local Energy Investment (MLEI) Cambridgeshire (L-CIF), which has been running since late 2012, has tested the business case for a local Low Carbon Investment Fund by using public money and public sector projects to leverage private investment and develop a bankable pipeline of projects. Read about the lessons learned by project director Sheryl French. With help from the EIB via ELENA funding , Green Capital 2015 Bristol is now setting up its own energy company.
Read more about project development assistance on ManagEnergy.net
European Structural and Investment Funds (ESIF)
‘Let’s use ESIF funds to trigger mass scale investment,’ said Vincent Berrutto, Head of Unit (Energy), EASME at a recent ManagEnergy workshop. And with EUR 40 billion for low carbon economy on the table between now and 2020, the opportunity is real.
At the workshop, Colin Wolfe, Head of Unit Smart and Sustainable Growth at DG REGIO focused on three aspects regarding ESIF funds – firstly the funding itself, of EUR 40 billion for the low carbon economy between 2014 and 2020. This is twice as much as was available in the last programming period, and shows that energy is a very high priority at European level, but also that enthusiasm for sustainable energy is demonstrated by Europe’s cities and regions whose response to the LCE offer in terms of matched funding was 50 % higher than anticipated.
Secondly, Wolfe focused on the use of financial instruments – and cited good examples from Estonia and Lithuania. ‘We need political commitment and everyday practical commitment to make this kind of funding available’, said Wolfe. ‘Let’s make the most of it with financial instruments’. The Juncker Plan aims at 20 % use of financial instruments.
Thirdly, Wolfe focused on the territorial approach of cohesion funding. ‘Territorial means a place-based approach – we can look at this collectively with many different partners, we can facilitate easily through our different programmes the exchange of best practice. Collective action, and the exchange of best practice, bringing operational and policy levels together – all this can be done with Cohesion Policy,’ he said.
Read more about ESIF on ManagEnergy.net
Community finance means money raised from the local community: including individuals and households, businesses and customers (e.g. of a cooperative venture). Community finance may be coordinated with leadership from the local authority or community group.
The community or cooperative energy movement is growing fast in Europe, and has an able advocate at European level –Dirk Vasintjan, RESCOOP and Ecopower, Belgium. There is potential for community funding to be combined with ESIF for greater impact.
Marie Donnelly, director of Renewables, Research and Innovation, and Energy Efficiency at DG Energy, European Commission says, ‘The energy cooperative idea is still small. It’s quite visible in Denmark, Germany and Flanders but it’s starting to grow. People want to be able to control what they see as a resource for themselves. And once they become engaged, it’s an area they find interesting. The issue of participation – this could be a job for local committees, local government, etc. to start the participation, to get people involved, and there’s economics involved as well, because you are producing something locally. That is engaging people in a very positive way.’
Read more about community funding on ManagEnergy.net
Revolving funds for sustainable energy provide financing to parties to implement energy efficiency, renewable energy, and other sustainability projects that generate cost-savings. These savings are tracked and used to replenish the fund for the next round of investments, establishing a sustainable funding cycle.
Particularly well known is the Estonian public financing institution, Fund KredEx, which in 2009 became the first European financial institution to launch a revolving loan fund for improving energy efficiency in apartment buildings. In recent years, Mazovia Energy Agency has gained significant experience in using financial instruments for sustainable energy projects at local and regional level. Speaking about the experience of managing a revolving loan fund, Bartosz Dubinkski, CEO of Mazovia Energy Agency said:
‘When we started, people wanted subsidies, not loans. Then project developers realised that it was cheaper to have a loan in the project than a grant, and the attitude changed. It was hard work to ignite the process, but we now have completed projects with good results and you can see the positive impact, people are catching on. Already there are ten projects in the pipeline and strong investor appetite – we’re experiencing a snowball effect.’
Read about revolving loan funds on ManagEnergy.net
New solutions for sustainable energy finance continue to emerge, with the nascent development of green municipal bonds in Europe.
Market-based financing of projects is emphasized in the valuable work of the Energy Efficiency Financial Institutions Group (EEFIG). At present, DG Energy is focusing on three aspects of finance for sustainable buildings: de-risking (meaning standardisation and benchmarking), aggregation (project development assistance), and supporting a market-based culture (for which the legislative framework is an important ‘pull’ factor for investment).
All in all, it’s an exciting time for sustainable energy project promoters. And, in the words of Marie Donnelly, director of Renewables, Research and Innovation, and Energy Efficiency at DG Energy, European Commission:
‘Energy transition and energy democracy – it can only happen at the local level.’
Keep up the good work and keep sending us your stories!
See you in 2016,
The ManagEnergy team