Building the Energy Efficiency Financing Market
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Presentation in Brussels 22nd June 2016 covering Investor Confidence Project and EEFIG Derisking Project
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Building the Energy Efficiency Financing Market
- 1. Dr. Steven Fawkes 22nd June 2016 Building the Energy Efficiency Financing Market
- 2. The scale of the opportunity IEA estimate EU needs to invest €1.3 tn in buildings and €154 bn in industry 2014- 2035 to hit 450ppm scenario Boulton & Watt – the first energy services entrepreneurs
- 3. Status report on EE financing • Scale of market potential recognized • Value of non-energy 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!”
- 4. Energy financing - now Standardized Mainstream Large volume Multiple sources Standardized Mainstream Large volume Multiple sources NOT standardized NOT mainstream SMALL volume FEW sources Oil & gas Wind Efficiency
- 5. The energy efficiency capital gap Projects & Potential • Untapped market opportunity • Healthy returns • Established industry • Established technologies Investors • Search for yield • Risk/return • Growing emphasis on impact investing • Growing interest in EE
- 6. To bridge the gap requires 4 elements Provide finance Build demand Derisking Build capacity
- 7. Two elements of derisking Derisking Standardization - Technical development and documentation process - Standardized best practice for developing projects from baselining to M&V - Under-writing process within financial institutions - Standardized best practice for valuing and assessing risks of EE projects Evidence base(s) - Demonstrating conclusively the value of investing in energy efficiency - Energy benefits - Non-energy benefits - ROI
- 8. Standardization - Technical development and documentation process - Standardized best practice for developing projects from baselining to M&V - Under-writing process within financial institutions - Standardized best practice for valuing and assessing risks of EE projects Evidence base(s) - Demonstrating conclusively the value of investing in energy efficiency - Energy benefits - Non-energy benefits - ROI
- 9. EEFIG derisking project – 3 main elements Creation of an open source database for energy efficiency investments performance monitoring and benchmarking Interpretation of gathered data and development of a investments risk/performance modelling methodology. Development of common, accepted and standardized underwriting and investment framework for energy efficiency investing
- 10. De-risking Energy Efficiency Platform DEEP
- 11. DEEP data analysis - examples
- 12. De-risking Energy Efficiency Platform Become a DEEP data provider (& user) Building & industry projects wanted Individual project data is protected http://eefig.eu/index.php/about-the-project Contact: Carsten Glenting CAG@cowi.com Ivo Georgiev ivgg@cowi.com Steven Fawkes steven.fawkes@energyproltd.com
- 13. EEFIG Derisking project - underwriting Pre-financing Baselining Savings Term sheet Design, Construction, Commission Financial close Operations, Maintenance Monitoring Servicing Measuremen t & Verification Inspection Initial model Risk analysis Final model Comparison of actual performance against model Model refinement De-risking Energy Efficiency Platform Draw down Data Data
- 14. Standardized underwriting will allow Building capacity within banks Greater understanding of value and risks = better pricing Commonality of processes Reduced transaction costs Growing a primary market – increasing business opportunities Enabling aggregation and a secondary market Allows capacity building within banks and financial institutions around standardized processes Allows internal QA processes
- 15. The Investor Confidence Project A system to standardize the development and documentation of building energy efficiency projects in order to make them more investable. Started in USA 5 years ago by Environmental Defense Fund Brought to Europe 18 months ago €2m support from Horizon 2020 5 country consortium Being applied EU wide
- 16. Lack of standardization in EE results in: Greater performance risk Uncertainty limiting demand Higher transaction costs Difficult to build capacity Difficult to aggregate
- 17. Investor Confidence Project Protocols BASELINING • Existing Building • Drawings • Weather File • Energy Usage • Energy Rates • Occupancy SAVINGS • Model File • Calibration Data • Bid Packages • Certifications OPERATIONS • BMS Points • Fault Plan • Maintenance Plan MEASUREME • M&V Model • Regression Model • Adjustments • Impact • Baseline Adjustments COMMISSION • Cx Plan • Cx Authority • Test Procedures • Facilities Req. C x Protocols standardize best practice in project development and documentation
- 18. ICP Europe Protocols Large Standard Targeted Whole building retrofit, dynamic modeling Whole building retrofit, no dynamic modeling Single or limited number of EE measures ApartmentTertiary 6 European Building Protocols published and being applied. Starting development of Industry and Infrastructure Protocols.
- 19. Investor Ready Energy Efficiencytm Third-Party Verification Project Development Training, accreditation and project labelling being rolled out
- 20. ICP EU supported by > 140 Allies Join here: http://europe.eeperformance.org/join -icp-europe.html
- 21. The ICP European Investor Network > €1 bn committed or available to energy efficiency…...availability of capital is not the problem
- 22. Build capacity Finance sector - Understand EE value and risks - EEFIG underwriting - EIB P4EE Efficiency industry - Developing bankable projects - ICP Hosts - Stress co-benefits - Developing bankable projects - Contracting
- 23. Provide finance Project finance alone is not enough - development finance is needed as well
- 24. Build demand Sell non-energy benefits Sell concept of financed solutions to C-suite Multiple projects – not single projects Provide project development assistance
- 25. ICP – The future The future
- 26. Assembling the jigsaw: Retrofit Accelerator Provide finance Build demand Derisking Build capacity Development finance Project finance Commitment from host(s) Active marketing ICP Protocols IREE Contracts Reporting Training for: Project Developers Owners Banks
- 27. Energy financing - future Standardized Mainstream Large volume Multiple sources Standardized Mainstream Large volume Multiple sources Standardized Mainstream Large volume Multiple sources Oil & gas Wind Efficiency
Editor's Notes
- I want to start by giving a status report on energy efficiency financing, and indeed on energy efficiency activity generally, irrespective of the type of funding. Over the last five years the scale of the potential market for energy efficiency has been increasingly recognized. Those of us who have been active in energy efficiency have always known the potential was huge, it just took a few decades for the rest of the world to catch up. So the potential is recognized – a big tick. In the last two years the many co-benefits of energy efficiency have also been recognized, thanks in part to some excellent work by the IEA, the Regulatory Assistance Project in the USA and others. The co-benefits, or non-energy benefits can be worth many times the energy cost savings and the IEA is just working on methodologies to value co-benefits such as increased productivity, improved sales revenue, reduced absenteeism and better health. Measuring and valuing these co-benefits will be increasingly important as a driver for increasing investment into energy efficiency. Over the last few years there has been growing interest in energy efficiency from institutional investors who have recognized the benefits of energy efficiency as well as the fact that it does not depend on subsidies. To date, however, it has not been possible for most of them to invest. But finally, across Europe, but also across the USA, Asia and the rest of the world we find a common sense of frustration that things are not moving fast enough. This was best summed up by one of the bankers active in the field when he said “the trouble with the energy efficiency market is that the ratio of conferences to deals it too high.” In the investor Confidence Project we aim to change that ratio.
- NYC Benchmarking Requires ASHRAE II Audit Building Owner sees that office building is in lowest 25% of pier Engineering firm convinces owner of retrofit opportunity
- We have also recruited more than 50 Allies covering a wide range of stakeholders of all types, and all sizes, from right across Europe. Allies have signed up to support the work of the Investor Confidence Project and we would ask that you all sign up as Allies. It has no cost attached and it gets you firmly in the conversation.