Europe in renewed push for energy efficiency

Jessica Stromback
Jessica Stromback

A new European Energy Efficiency Platform has been launched as a one-stop shop for energy efficiency data and knowledge. Its purpose is to help policymakers, researchers, industry, and public and consumer bodies to meet the strategy’s EU-wide target of 27 per cent energy savings by 2030.

It is organised around six themes – products, cities, buildings, transport, industry and distribution (heating, cooling and electricity) – and offers visitors online collaborative tools to help share information, identify priority sectors for energy-saving measures and avoid duplicating efforts, in order to generate knowledge and provide insights for energy efficiency policies.

It comes as a report from Joule Assets Europe highlights a trend towards improved access to financing for energy efficiency projects.

“Energy efficiency has had difficulty getting finance from banks because they’re used to financing something they can see,” chair of Joule Assets Jessica Stromback says. “It’s about a reduction, a gap. They can’t really grasp the concept of paying for something that isn’t there.”

But Stromback sees several banks that are already starting to act. These include:

  1. Societe Generale, which is combining smaller projects into larger packages that are easier for investors to evaluate. Allan Baker, global head of power, says he is examining the use of green bonds to finance efficiency alongside debt and equity. “Energy efficiency projects can vary enormously, from less than one million pounds to 20 million pounds [less than AU$2m to $4m]. Banks start to take an interest when projects are aggregated to the size of about 30 million pounds [AU$60m].”
  2. Deutsche Bank, which manages the €265 million (AU$411m) European Energy Efficiency Fund, has given loans to 10 energy efficiency projects in six EU countries. Overall they aim to reduce power use by at least 20 per cent. The projects are above €5 million (AU$7.8m) in value but sometimes lower for those projects that take less time to implement and to replicate, according to Lada Strelnikova. She is responsible for managing the Investment Advisor mandate for European Energy Efficiency Fund  within Deutsche Bank’s Asset Management Unit. The fund was set up by the European Commission with participation of European Investment Bank and Italian bank Cassa Depositi e Prestiti in 2011.
  3. The German government is also offering at least €13 billion (AU$20.2b) worth of loans and subsidies to factory owners and homeowners over the next four years. The aim is to reduce carbon emissions. Much of this work is being administered by the KfW Development Bank in Frankfurt. “The cleanest and cheapest energy is the one you don’t use at all,” Economy Minister Sigmar Gabriel told reporters in Berlin on 12 May.

In conjunction with HSB Engineering Insurance, Joule Assets Europe is developing a platform to standardise measures of value and assess risks in energy efficiency projects. Together they are compiling a €6.5 million (AU$10m) portfolio of efficiency projects. The renovation of a residential block in Barcelona is forming a pilot project.

“Unlike other products where you’re buying something tangible, you’re buying the savings,” Stromback says.

Thomas Rowlands-Rees, analyst at Bloomberg New Energy Finance, argues that there is still much work to be done before the investment industry finds a sustainable way of making energy efficiency bankable.

“Projects are all very different from one another, physically and in terms of ownership structure,” he says. “Many ideas for project aggregation don’t change the fundamental problems. The industry is still searching for a well-suited mechanism.”

Strelnikova is optimistic that banks can reduce the complexity of the investments, but they need to learn the skills to do so.

“The projects usually have different technologies, which leads to difficulty with due diligence,” she says. “The market will mature and standardise at some point.” At present it is still in the stage of gaining experience and learning.

The Industry, Research and Energy Committee of the European Parliament is set to vote on the latest implementation report on the Energy Efficiency Directive on 24 May. New research – published in the framework of the Energy-Efficiency Watch 3 – highlights both progress and lack of action. The report will say that the 20 per cent efficiency target for 2020 will be met despite the fact that most member states have not fully implemented the directive.

It finds that since 2011 there are, overall, more new or improved energy efficiency policies than weakened or abandoned policies, but many EU member states still need to grasp the benefits or allocate resources to invest enough money and implementing capacity in energy efficiency policies.

It is based on a survey of 1100 EU experts in early April and an analysis of the National Energy Efficiency Action Plans and the development of European and national energy efficiency policies within the framework of the EED.

Bloomberg New Energy Finance estimates that $310 billion of investment went into energy efficiency in 2015 but neither the London-based research arm of Bloomberg LP nor the IEA in Paris could corroborate this, since there is a problem about exactly what qualifies as energy efficiency and which companies completed any measures. Do we count capital expenditure on a new process that is more efficient as energy efficiency capital expenditure but which was purchased for reasons other than energy efficiency such as increased productivity or introducing new products, or do we just count investment that is only made for the purpose of improving energy efficiency?

Furthermore, unlike wind farms or solar power stations, efficiency projects don’t produce anything that can be sold like fuel. Any profit they generate comes from saving energy, which is a challenge for accountants and others who assess credit risks, according to a report by S&P Global, published at the end of last year. Other barriers to investment include diversity in the structure of projects, long payback periods, small transaction sizes and a lack of a visible cash flows for debt repayment.

Yet the potential is enormous. S&P estimates advancements in efficiency may suppress global oil demand growth by 23 million barrels of oil a day by 2040, more than the daily production of Saudi Arabia and Russia combined. The route to a market for energy efficiency products is slow, but at least now we recognise there is such a road.

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