deneff keynote - assembling the jigsaw of energy efficiency financing. steven fawkes
TRANSCRIPT
Energy efficiency finance:
assembling the jigsaw
Dr. Steven Fawkes
DENEFF
25th March 2015
European Commission Disclaimer
This project has received funding from the European Union’s Horizon 2020 research and innovation programme
under grant agreement No 649836.
The sole responsibility for the content of this presentation lies with the authors. It does not necessarily reflect the
opinion of the European Union. Neither the EASME nor the European Commission are responsible for any use that may
be made of the information contained therein.
Status report on EE financing
• Scale of market potential recognized
• Co-benefits increasingly recognized
• Growing interest from institutional investors
• Slow development of the EE financing market – leading to frustration
✔
✔
✔
✗
“The ratio of conferences to deals is too
high!”
• Strong demand by owners and investors
• Highly skilled and accredited workforce
• A mix of financing products at attractive rates
• Standardized tools for tracking and quantifying savings
• Active secondary market
A healthy European energy efficiency market would have:
Capacity
building
supply
side
Standardization
Product
offerings
Development
gap
Capacity
building
demand
side
Capacity
building
financial
institutions
Standardization
EEFIG conclusions
“From a financier's perspective, energy efficiency projects
entail high transaction costs and are perceived to be
risky due to the difficulty of predicting accurately
energy cost savings. Sufficient experience with
underwriting energy efficiency loans and standardized
evaluation methods for measuring and verifying
energy savings is still lacking. The lack of secondary
markets to provide exit opportunities for investors, or
further liquidity to the investments is another important
barrier.”
— JRC Science and Policy Report, Financing Building Energy Renovations
(2014), Marina Economidou and Paolo Bertoldi
JRC conclusions
Citigroup conclusions
Energy efficiency is in a category by itself. With the
exception of one company packaging energy efficiency,
energy efficiency projects do not yet meet the
requirements of capital markets. The industry is just
too disaggregated. No two projects or contracts are
alike. Securitization is not practical or possible under
these circumstances. Say you have 1,000 energy
efficiency projects, Standard & Poor’s would have
to read 1,000 documents to assess the risk. Fees
won’t pay for that level of review.
Michael Eckhart
Managing Director & Global Head of Finance and
Sustainability at Citigroup
International Energy Agency conclusions
The IEA’s Energy Efficiency Market Report 2014
highlighted ICP as a program that will “facilitate a
global market for financings by institutional
investors that look to rely on standardized
products.”
Energy financing
Standardized
Mainstream
Large volume
Multiple sources
Standardized
Mainstream
Large volume
Multiple sources
NOT standardized
NOT mainstream
SMALL volume
FEW sources
www.eeperformance.org
Current lack of standardization
Greater performance risk
Higher transaction costs
Cannot build capacity
Cannot aggregate
ICP Energy Performance Protocols
BASELINING
• Existing Building
• Drawings
• Weather File
• Energy Usage
• Energy Rates
• Occupancy
SAVINGS
• Model File
• Calibration Data
• Bid Packages
• Certifications
COMMISSION
• Cx Plan
• Cx Authority
• Test Procedures
• Facilities Req.
OPERATIONS
• BMS Points
• Fault Plan
• Maintenance Plan
MEASUREME
• M&V Model
• Regression
Model
• Adjustments
• Impact
• Baseline
Adjustments
C
x
ICP Protocol development process
Organize market leaders to provide input into the development of the protocols
– Financiers
– Building owners
– Developers, installers, ESCOs
– Government agencies
– Utilities
ICP North American Protocols
Large Commercial
Standard Commercial
Targeted Commercial
Large Residential
Standard Residential
Targeted Residential
Third Party
Verification
[to follow
soon]
Contractor, Software and QA Accreditation
Investor Ready Energy Efficiency
ICP Europe – initial focus
In-country advocates
UK
Germany
Austria
Bulgaria
Portugal
ICP Europe Steering Group
ICP Europe Network Members
20172016
Investor Confidence Project Europe
CREATE TOOLSProtocols
Accreditation
Labels
Open data
TAKE TOOLS TO MARKETPrivate investors
Public programmes
Developers
Property owners
Utilities
BE A CATALYST FOR CHANGEInspire action
Connect projects to capital
Create working examples
2015
Capacity
building
demand
side
EE is so boring
• Large yawn
Energy efficiency is
so……boring
Supply system benefits
- Power supply
- T&D capacity
- Environmental
- Losses & reserves
- Risk
- Credit & collection
Participant benefits
- Productivity
- Quality
- O&M costs
- Health impacts
- Employee productivity
- Lower absenteeism
Society benefits
- Air quality
- Water
- Solid waste
- Energy security
- Economic development
- Health
Examples of co-benefits
• Removing constraints on production expansion (Costa Coffee)
• Increased retail sales (M&S)
• Reduced need for operator intervention (Worsley Alumina)
• Increased throughput (Metalexacto)
• Reduced corrosion inhibitor & reduced corrosion (Danish liquid gases company)
• 39% reduction in days lost at work (New Zealand)
• Office productivity (Springfield, OR utility)
Capacity building demand side
• ISO50001
• Value co-benefits
• Integrated design
• Consider outsourced energy services
– Bring expertise and finance
– Can accelerate deployment
Development
gap
The gap between potential and
bankable projects
Mind the development gap
• Overcoming the development gap requires:
– Vision
– Skills
– Finance
– Standards
• Need to develop multi-building projects to achieve scale
Product
offerings
Traditional EPC / ESCO is not the answer
• Usually on balance sheet
• Debt constrained by mortgage covenant or structure
• Guarantee is not a credit enhancement
• Transaction costs
• Tenant-landlord split incentive
• May work well in public sector but not in commercial property sector
Innovation is appearing
• Efficiency Services Agreement (ESA)
• Managed Energy Services Agreement (MESA)
• Measured Energy Efficiency Transaction (MEETS)
We need more innovation
Capacity
building
supply
side
Capacity building – supply side
• Start with finance
• Develop projects at scale
• Innovate offerings
• Understand the markets better
• Sell co-benefits
Capacity
building
financial
institutions
Capacity building - financial
• Standardisation
• Training on:
– Multiple benefits
– Technologies
– Contract types
– Standards
– Available support e.g. EC, EIB, national programmes
Capacity
building
supply
side
Standardization
Product
offerings
Development
gap
Capacity
building
demand
side
Capacity
building
financial
institutions
You can cut the jigsaw pieces
precisely to make them fit better but if you don’t have all
the pieces you can’t finish the puzzle
WORK ON ALL THE PIECES
Policy considerations
• Reward all the value streams
• Design energy market to value the benefits
• Consider cross Ministry benefits e.g. health
• Ensure supply-demand decisions are balanced e.g. network operator regulation
• Phased move away from top-down programmesto creating markets for efficiency
• Stable policies
ICP – The futureThe future
• Strong demand by owners and investors
• Highly skilled and accredited workforce
• A mix of financing products at attractive rates
• Standardized tools for tracking and quantifying savings
• Active secondary market
A healthy European energy efficiency market would have:
Energy financing - now
Standardized
Mainstream
Large volume
Multiple sources
Standardized
Mainstream
Large volume
Multiple sources
NOT standardized
NOT mainstream
SMALL volume
FEW sources
Energy financing – the future
Standardized
Mainstream
Large volume
Multiple sources
Standardized
Mainstream
Large volume
Multiple sources
Standardized
Mainstream
Large volume
Multiple sources
Contact
www.eeperformance.org/europe
www.onlyelevenpercent.com
@DrSteveFawkes
+44 77 0223 1995
© Steven Fawkes 2014