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New financing for energy efficiency

green finance money

A new online platform, eQuad, makes it much easier for small energy efficiency projects to find investors. 

Financial markets are not prepared for climate change. Event risk, infrastructure, stranded assets, misplaced investments, under-insured assets – all are examples of how clients and providers are carrying on as if business as usual is an option when climate change impacts are making headlines everyday.

But where there is crisis there is opportunity. And one space where the door is wide open is the financing of energy efficiency.

The European energy efficiency market has been in the doldrums due to high transaction costs, including due diligence. This has been blocking access to capital, frustrating investors and complicating project finance. It’s a miserable statistic, but presently only 10 per cent of energy efficiency projects presented to investors manage to reach deal closure, according to Caroline Milne, director of communications at Joule Assets Europe.

“This doesn’t mean the 90 per cent of projects that fail to reach finance are unfinanceable,” Milne explains.

“They simply are not presented in a language that investors understand – they need to be vetted in order to facilitate communication and ease risks associated with energy efficiency.”

Joule AssetsEurope addresses this market failure by providing financing solutions and strategic support for Sustainable Energy Assets, which include energy efficiency, distributed renewables, storage, and building control measures.  

In May, Joule launched an online platform, eQuad, that provides access to third party project valuation, performance insurance, project certification, due diligence, and introductions to prequalified capital sources in the form of off-balance sheet financing.

The first UK deal has just been successfully completed on this platform – for a £5 million (A$8.9 million) investment from a regional financial fund that will allow Proven Lighting, a Belfast-based LED Lighting firm, to launch their “Lighting as a Service” (LaaS) model through Lumenstream– again from Belfast, but whose commercial presence spans the UK and Ireland. 

The model is based on the principle of Third-Party Finance (TPF) from a financial fund. It will cover the upfront costs of lighting upgrades to buildings and industry, bringing instant reductions in energy bills and benefit from increased comfort and sustainability. The loan will be recouped over time through the cash savings from the substantial reduction in total energy spend 

How it works

Proven Lighting had been refused a conventional bank loan for their Lumenstream venture, as the bank could only service it on a one off basis and on-balance sheet, which would ultimately limit the number of projects it could take on at any one time.

At the same time, Lumenstream decided that it wanted buyers of its lighting products to view it in a new way – as a service rather than a product. So they chose an energy services company model and packaged together five different customers – all from industry, including a plastics company, a dairy, and an agricultural firm – into a single £370,000 (A$665,413) bundle that required financing.

They took this package to the eQuad Platform. This online facility acts as a go-between and enabler of investment in European energy efficiency and renewables projects across Europe. Among eQuad’s development team was the Investor Confidence Project (Europe) and HSB Engineering Insurance.

On eQuad, upfront financial analysis of projects can be conducted and reviewed. Caroline Milne explains: “A contractor can input basic information on the design and measures of the project; eQuad in turns performs a financial due diligence, as well as additional technical due diligence (ICP) and risk assessment for insurance, with a short turnaround. This last part is optional, not everyone goes for certification – however our vetting process remains vigorous. At the end, investors receive vetted pipelines that match their investment criteria –  the first discussion between contractor and investor is less about ‘is this a financeable project?’ or ‘can we trust you?’, and more ‘let’s structure the deal.’”

“For us, then, it’s about building relationships and trust. Fund managers for example need good projects that are well presented and this is what we supply.”

In Lumenstream’s case, Joule Assets Europe provided initial financial due diligence as well as business model restructuring, reviewed their end-client contract to ensure it was compliant with the investors’ standards, and enabled certification and Energy Efficiency Performance Insurance, which was provided by HSB Engineering Insurance at a reduced rate.

A suitable investor was found and a £5 million (A$8.9 million) edeal was structured, allowing Proven Lighting to pay for the upfront and maintenance costs of their initial pipeline while enabling a steady stream of capital for future projects on an as-needs basis, freeing up the company to market their LaaS and increase their sales output. The average IRR of the projects is a highly respectable 50.54 per cent, with an average project payback time of 1.88 years.

This is not the first project conducted on the platform, but it is the biggest UK deal to receive financing, and is an impressive sum for a start-up rolling out ‘light as a service’ to corporateclients.

Some eQuad deals will include demand management, storage and energy generation too, said Milne.

Alistair Brown, Director at Lumenstream, said that, “Third Party Finance is the key enabler to successfully rolling out LaaS and it is extremely difficult to access. Joule’s eQuad platform expedited the entire process, enabling us to launch Lumenstream in just over a quarter. We are now able to offer customers across the UK and Ireland the possibility of easily accessing highly energy efficient technology, and the cold hard cash savings that comes with it.”

Jessica Stromback, Chair of Joule Assets Europe, added that their mission “is to ensure money is never a barrier to the growth of the green economy – but a facilitator. This is why we created eQuad. Using this model – small businesses, communities, investors, the entire green economy – can flourish.”

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