Financing Energy Efficiency - Green Mortgages Workshop

Financing Energy Efficiency
– Green Mortgages
Dublin
24th April 2018

09.30 Plenary Session:
Building a market for green mortgages
10.30 Coffee Break
10.50 Workshop:
Developing energy efficient mortgages in Ireland
12.45 Event ends – Light lunch served

Energy Efficient Mortgages Initiative
www.energyefficientmortgages.eu
5
✓ Energy efficient Mortgages Action Plan (EeMAP)
✓ Energy efficient Data Portal & Protocol (EeDaPP)

Reduced
emissionsReduced
energy
infrastructur
e costs
Reduced
unwanted
mobility
Local
spending
Improved
community
appearance
Local
employment
Improved
human
health
Fewer
energy
subsidies
Higher
property
values
Specific benefits from energy efficiency (EE)
in households
6

How can banks play a game changing role in
improving Energy Efficiency?
More than
350 million
live under
their own
roof
247 million
dwellings
510 million
people
more than
220 million
dwellings
were built
before 2001
7498 MFIs
and
188,109
branches
On average
each branch
serves
around 2,700
people
Private financing
In the EU 28 there are… …of which
This initiative
has huge
potential!
7

Underlying risk parameters impacted
by EE
Retrofitting impacts positively on
property value ensuring wealth
conservation & loss mitigation by
preventing “brown discount”
EE leads to a reduction in the impact
of energy costs to income, reducing
borrowers‘ probability of default
8

Objective & Underlying Business Case
The ultimate objective is a pan-European private bank financing
mechanism, based on a standardised approach, to encourage energy
efficient improvement by households of the EU’s housing stock by way of
financial incentives linked to the mortgage, and in this way support the EU
in meeting its energy savings targets.
Independent from, but complementary to, public funds or tax incentives
Underlying business case
9

Methodology - Financing mechanism
▪ Key challenge: to incentivise energy efficient investment in existing dwellings, which
constitute bulk of EU housing stock
▪ Based on a set of EE indicators, lenders could offer:
➢ New Builds: Discount in interest rate for new builds with energy rating A+/A or B;
➢ Existing property: Discount in interest rate according to improvement in energy rating
of property between D and A/A+
10

1
1
EE Renovation
Energy efficiency
advisor (EEA) to
advise on:
1. Necessary EE
renovation
2. Complementary
funding sources
(subsidies)
Mortgage
application
Before EE Renovation
SME carries
out EE
renovation,
guaranteeing
performance
After EE Renovation
Bridging Renovation Gap - In Practice
Mortgage
granted
& EE top-
up
provided
directly
to SME
Ex ante
Valuation of
property
Qualified SME
selected by bank
to carry out EE
renovation
Bank grants
preferential
interest rate on
mortgage based
on EE/smart
meter
EEA certifies
EE
renovations in
line with EE
requirements
Ex post
valuation of
property

EE Impact on Properties?
Every time a house moves up a notch in energy performance, its price gets
around the same boost that it would from an extra 10-15 m² in size
EE jump = Gain of €24,000 over 30 years:
▪ A renovated house that moves from an ‘E’ to a ‘B’ notch in its energy
performance certificate (EPC) will save an estimated €24,000 over 30 years
according to an analysis of 365,00 house sales in Denmark last year
EE notch= €5,400/€7,400 for an average 100 m² property:
▪ Each one-notch energy improvement from G-A is worth between €5,400-7,400
to an average 100 m² property according to a Copenhagen Economics Study for
the Danish Energy Agency
Correlation between EE and sale price?
▪ A European Commission assessment in 2013 found that in Vienna, a one-
notch EPC improvement corresponded with an 8% rise in the sale price. In
Flanders (BE), the equivalent of a one-notch upgrade was found to trigger a
4.4% rise in property value, while for Marseille and Lille (FR), the figure was
4.3%. www.energyefficientmortgages.eu
12

Broader Perspective
Better Risk Management:
▪ Lower Credit Risk: Due to reduced probability of default and loss given
default
▪ Lower Asset Risk: Due to “green value” and protection against “brown
discount”
▪ Lower Performance Risk: Due to robust assessment of EE improvement
ensuring lower energy consumption and ”green value”
Financial Stability:
▪ Increased due diligence for consumers, issuers and investors
▪ De-risking of banks' balance sheets and management of non-performing
loans
▪ Enhanced transparency and pricing in the market
Jobs and Growths:
▪ Improvement in private investment in EE improvement via retrofitting
▪ Support for SMEs and contribution to job agenda under Junker Plan
13

Incentive Chain
Borrower:
- Lower energy bills
- Energy Efficiency Behaviour
- Lower interest rate on mortgage
for energy efficient property
- Free capital for retrofitting
Issuer/Originator:
- Access to funding cost advantages
-Increased loss mitigation capacity
- Lower capital requirements as a
result of lower PD
- Reputational benefits
Investor:
- Diversification of investor portfolio
- Allocation of energy efficient
investment buckets
- Green added value vs brown
discount
SME/ Real Economy:
- SMEs active in the retrofitting of
buildings and dwellings to become
more energy efficient
- Juncker Plan
Society:
- Reduction in energy consumption
- Wealth conservation
- Reduction in greenhouse gas
emissions
Government:
- Pan European plan to stimulate energy
efficient investment in residential property
- Improvement of existing housing stock
- Compliance with 1997 Kyoto Protocol – COP21
- Access to quantitative & qualitative database
on energy efficient mortgages & covered bonds
14

EE & Mortgage Lending & Covered Bond Value
Chain
15

Covered Bond Label: Sustainable Covered
Bonds
TheLabelledSustainable
CoveredBondDefinition
16

How to solve the ‘chicken & egg’ dilemma
Assets Liabilities
EE mortgages
• collateral
EE bonds
• Covered Bonds
• Securitisation
European
Investment
Fund (EIF)
European
Investment
Bank (EIB)
Investor Demand
National Promoting Banks:
Green Purchase Programs
17

EeMAP Pilot Phase: Existing Data Analysis &
Operational Test Phase
Phase 1: Analysis of Existing Data:
• Substantiation of business case
• Focus on correlation between EE
and LGD & PD
Phase 2: Operational Test Phase:
• Deployment of valuation
instructions & EE indicators
• Origination of EE mortgage
product
• Potential involvement of EIB/EIF
• Data collection
June
2017
June
2018
May
2019
18

EeMAP Pilot Phase Guidelines
Three set of guidelines which should be considered in order to ensure successful
implementation of an Energy Efficient Mortgage product within banks’ existing
internal procedures:
I. EeMAP Implementation Guidelines for Banks
II. Valuation Guidelines: Energy Efficiency Checklist
III. Building Performance Assessment Guidelines
All three sets of guidelines are scheduled to go into public consultation in February
2018, after which the final sets of guidelines are excepted to be presented officially
at an EeMAP & EeDaPP Stakeholder Event planned to take place on 14 June 2018 in
London, followed by the start of the EeMAP Pilot Phase
Available on the EeMAP website here: http://energyefficientmortgages.eu/04-
downloads/
19

List of Banks Involved in EeMAP initiative
▪ ABN Amro
▪ BNP Paribas Fortis
▪ ING
▪ Münchener
Hypothekenbank
▪ UniCredit
▪ Crédit Foncier de
France
▪ Barclays
▪ Berlin Hyp
▪ Crédit Agricole CIB
▪ Volksbank Bozen
▪ Caja Rural de Navarra
▪ Cooperative Central
Bank Cyprus
▪ NIBC Bank N.V.
▪ Obvion Hypotheken
▪ Crelan
▪ BBVA
▪ JP Morgan
▪ Banca Monte dei
Paschi di Siena
▪ Fannie Mae
▪ DBS Bank Singapore
▪ Japan Housing
Finance Agency
▪ HSBC
▪ KBC www.energyefficientmortgages.eu
20

Technical Committees
21
▪ The Banking & Finance Committee is made up of financial experts from a wide range of
jurisdictions and financial institutions with key knowledge of risk parameters, financial and
investment structures and green funding criteria and which have extensive experience with
mortgage origination, refinancing and covered bond funding processes.
▪ The Energy Efficiency Committee consists of energy, energy efficiency and building experts
from a wide range of jurisdictions and organisations with extensive knowledge and expertise
spanning the entire building value chain.
▪ The Valuation & Data Committee brings together real estate and valuation experts and
financial data management platforms and vendors, information service providers from a
wide range of jurisdictions and institutions.
▪ In addition, the EeMAP has an Advisory Committee consisting of national, European and
International Institutions which provide regulatory and policy guidance on the key elements
of the Initiative and insight into the requirements needed to trigger institutional support.
▪ State of play of the Technical Committee….

Political Environment in Brussels
22
European Commission - Vice-President Dombrovskis:
➢ “Looking positively at amending capital charges for banks to boost green investments and loans.
This could be done at first stage by lowering capital requirements for certain climate-friendly
investments, such as energy-efficient mortgages or low-carbon cars. However, this exercise
would be delicate. Green does not mean risk-free. Any measures would have to be carefully
calibrated, and based on a clear EU classification.
High-Level Expert Group on Sustainable Finance – Final Report:
➢ “Europe has the unique opportunity to build the world’s most sustainable financial system”
➢ It sets out a package of eight recommendations that will make it happen
Capital Requirements Regulation - Review:
➢ Introduces the idea of a “green supporting factor” in the draft ECON report, which is an
recognition of the importance of stimulating investment in green assets as part of the EU’s
broader sustainable energy agenda.
Energy Performance of Buildings Directive - Review:
➢ Current draft refer to “energy efficient mortgages” and “lower risk weight for collateral with
certified energy efficiency renovations” in recital
➢ Will be voted on in April 2018

EeMAP Website: http://energyefficientmortgages.eu/
EeMAP 2-page Introduction:
http://energyefficientmortgages.eu/wp-
content/uploads/2017/06/EeMAP-Two-page-introduction.pdf
EeMAP Emerging Analysis: http://energyefficientmortgages.eu/wp-
content/uploads/2017/07/Emerging-Analysis-1.pdf
EeMAP Upcoming Events:
http://energyefficientmortgages.eu/?page_id=1016
This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 746205.
23

EeMAP White Paper
▪ Overview of current practices in relation to finance, energy efficiency indicators,
property valuation and the impact of energy efficiency on risk management
▪ Key recommendations towards the creation of an Energy Efficient Mortgage
product for Europe
1. A simple & standardised framework for Energy Efficient Mortgage to help
market entry allowing for national heterogeneity, with guidance on the
underlying finance mechanism
2. A clear definition of an Energy Efficient Mortgage to enable banks to
differentiate between energy efficient and conventional mortgages in their
risk management processes
3. Energy efficiency in property valuations. To ensure that energy efficiency is
appropriately taken account of in property valuations, banks should be
guided on how and what to instruct property valuers in relation to energy
performance of buildings
4. Simple and proportionate energy efficiency performance indicators, with
flexibility to take account of differences between current national approaches
The EeMAP White Paper is available on the EeMAP website:
http://energyefficientmortgages.eu/wp-content/uploads/2017/10/EeMAP-White-Paper.pdf
24

Four EeMAP Technical Reports
▪ The research findings are detailed in the four EeMAP Technical Reports:
‘Green’ Finance Mortgage lending valuation
Building Performance Indicators EE Impact on probability of default
25

EeMaPP EeDaPP
The EeMAP project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 746205.
The EeDaPP project will receive funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 784979.
26

Co-funded by the Horizon H2020 Framework Programme
of the European Union under grant agreement no 695873.
The ENERFUND project
«An ENErgy Retrofit FUNDing rating tool»
Michael Hanratty
Energy Action & IHER Energy Services
Energy Efficiency Mortgages
24th April 2018

28/10
ENERFUND
An ENErgy Retrofit FUNDing rating tool
2050 climate mitigation targets.
• Ireland will miss its 2020 interim targets……………
• Significant focus on energy efficiency in public buildings
• Commercial buildings (109,000) – annual primary energy
18,000,000kWh – huge room for energy reduction to contribute
to national targets
Challenges….

29/10
ENERFUND
The ENERFUND tool will rate and score deep renovation
opportunities – like a credit score used by banks to rate
clients.
By providing a rating tool for deep renovation opportunities
– both private and public buildings –
• funding institutes can provide targeted loans,
• retrofit companies can identify sound opportunities,
• municipalities can promote targeted incentives and the
• public's trust for retrofitting will be enhanced.
ENERFUND will focus on retrofit of apartment buildings,
commercial buildings and public buildings
Project Introduction – Overall Goal

30/10
ENERFUND
NO ORGANISATION COUNTRY
1 Cyprus University of Technology Cyprus
2
Centre for Renewable Energy Sources
and Saving
Greece
3
National Institute for Research and
Development in Construction, Urban
Planning and Sustainable Spatial
Development
Romania
4 Cyprus Energy Agency Cyprus
5 ECB – Energy Centre Bratislava Slovakia
6 Severn Wye Energy Agency UK
7 Sustainable Energy Development Agency Bulgaria
8 Jozef Stefan Institute Slovenia
9 Aalborg University Denmark
10 Valencia Institute of Building Spain
11 SERA energy & resources e.U Austria
12 Energy Action Ltd Ireland
13 ENERMAP Ltd Cyprus
14 Energies 2050 France
15
Ministry of Regional Development and
Public Administration
Romania
15 Project Partners – 12 Countries
https://youtu.be/RylWOZv7e50

31/10
ENERFUND
Overview
Maps for England, Spain,
Lombardy, Bulgaria, Greece, Paris
…. Ireland
Coming soon…Denmark, Slovenia

32/10
ENERFUND
Ireland (using 60,000+ BERs)

33/10
ENERFUND
Panning in and Filtering

34/10
ENERFUND
Panning in and Filtering

35/10
ENERFUND
Comparing buildings..

36/10
ENERFUND
Additional features proposed:
• Filtering by building types in a geographical area to select for example,
hotels in Dublin with an E, F or G rating or office buildings in Cork over
200m2 with a D, E,F or G rating & then generating addresses for all of those
buildings
• The ENERFUND score (cost benefit analysis, carbon emissions)
• Aggregated data where building level is not available
• Property prices
• Rental prices
Additional Features….
• A video demo is available on the website –
www.enerfund.eu
• http://app.enerfund.eu/

37/10
ENERFUND
• We are inviting suggestions as development is ongoing
• All feedback welcome……
– Is the tool easy to use?
– Is data provided sufficient?
– Is the building comparison feature of use?
– Would you use it for marketing or prospecting purposes?
– What extra features would you like to see? E.g. grants
available, demographics, other open databases?
12 months to go…

38/10
ENERFUND
Thanks for your attention…..michael@iher.ie
That’s all folks….

EeMAP: The Story So Far
Marion Jammet, Irish Green Building Council

• Mortgages = ⅓ of total EU banking sector assets -
worth ½ EU GDP (€7 trillion)
• Most well-known and cheapest form of property
loan
• Engage with key “trigger points” for renovation
(purchase, refinance)
• EU capital market reforms – EU setting out strategy
for sustainable finance
• Leading mortgage lenders recognise case for
favourable capital treatment if loan data can
evidence lower risk
Why mortgages and why now?

“has the potential to change consumer behaviour”
“opens tremendous social and economic opportunities
for households, lenders and investors”
“A clear and common framework constituting an
Energy Efficient Mortgage would help us grow this
market”
“we support the development of the EeMAP initiative”
“Now is the time for private financial
institutions to enter the market at scale”
Growing enthusiasm amongst
Europe’s biggest banks

“A unique partnership to leverage
the power of mortgage lending in
reducing the energy use of
Europe’s buildings.”

Project Timeline: Energy Efficiency Work
Research Phase
State of
Play
Reports
Pilot Phase
10x National
Workshops
Initial
Pilot
Outcome
s
Consultation
Draft
Proposals &
Consumer
Research
Updated
Proposals
for Pilot
Phase
Public
Consultation
Closes
12 March
2018 2019
OCT NOV DEC JAN FEB MAR APR MAY JUN JUN
2017

EeMAP Consumer Research
Qualitative and Quantitative Consumer Research:
• Focus groups in 4 key markets: DE, IT, SE, UK
• Online surveys in 3 key markets: IT, SE, UK
• Insights into consumer preference and likelihood to take out a
‘green mortgage’
Available from worldgbc.org/green-mortgages

47 All respondents. UK = 525, IT = 516, SW = 543
500 interviews in three markets with consumers who had recently taken out a
mortgage, or were actively considering a mortgage
First time buyer
1st mortgage or considering first
mortgage
19% 24% 17%
Experienced mortgagee
onto their 2nd or more mortgage 54% 54% 48%
Multiple mortgage holder
2 or more mortgages 27% 22% 34%

48
A significant proportion of the market in Italy consider energy efficiency when buying a
home, but this is more muted in other markets
X1. Which of the following are most important when considering which property to buy?
Base: All respondents UK (525), Italy (516), Sweden (543)
Important factors when buying a property
All respondents
Importance
Price
53
%
42
%
Location of the
property
How energy efficient
the property is
37
%
the property is
24
%
Price
71
%
62
%
Location of the
property
Size of the property
35
%
the property is
19
%
Price
65
%
62
%
Location of the
property
Size of the property
42
%

49
B2. How relevant is this new mortgage product to you?
Italian’s see Green Mortgage as relevant, but some consumers in Sweden
struggle to believe it could be of interest to them
Claimed relevance of Green Mortgage
proposition
All respondents
34%
Very / quite
relevant
Very
relevant
63%
53%
Very / quite
relevant
Very
relevant
79%
Very relevant
Very / quite
relevant
Not at all
relevant
20%
19%
43%
* Not at all relevant UK = 10%, Italy = 3%
Significantly higher or lower vs. other markets

50
The Green Mortgage holds greatest appeal to the Italian market, and outright
rejection of the proposition is minimal…
Very appealing
(T2B)
37% 55% 31%
Appeal of Green Mortgage proposition
All respondents
B1. Thinking broadly about the new mortgage product you have seen, how appealing do you find it?
Very / quite
appealing
(T3B)
66% 80% 58%
Very unappealing
(B2B)
7% 3% 9%
“This would be brilliant
– we’ve been wanting
to do something like
this for years… there’s
no downside – 10/10”
Sweden
“I like the idea of
improving energy
efficiency and I think
that in the long run I’ll
save money”
Italy
“An excellent
opportunity for energy
improvement in my
home, helping not only
me, but the
environment”
Italy
“I like trying to be
green and love idea
of being rewarded
for it”
UK
Significantly higher or lower vs. other markets

EeMAP Framework in Overview
Principles for
Lending
Institutions
Building
Performance
Assessment
Criteria
Valuation Guidance
and EE Checklist
• Sets the
overall
framework
• Sets the
assessment
criteria
• Guidance for
valuers

Key Issues
Standardised vs. Flexible
New build vs Existing
Commercial vs. Residential
Deep vs. Staged
Simple vs. Robust
Customer desires vs. Technically sound
Pilot stage pragmatism vs. Final ambition

Building Assessment Briefings
Detailed market intelligence covering:
• Characteristics of the building stock
• Energy performance certificates, e.g.: access, QA procedures,
coverage, etc.
• Other energy performance assessment infrastructure
• Energy performance measurement infrastructure
• Existing EE finance initiatives
• Sustainability assessment and certification landscape
Available from worldgbc.org/green-mortgages

EeMAP National Workshops
• To gather detailed national feedback on proposed Building Performance Criteria
• To explore national implementation
• Feedback will be collated by WorldGBC Europe
• Feedback used to refine to proposals ahead of the pilot in June

EeMAP Pilot Scheme
June 2018 onwards
• To test the EeMAP guidelines in an
operational environment
• Create the learning and relationships needed
to strengthen value-chains
• In time, mortgages will be issued, in line with
EeMAP’s proposed guidelines
• Lenders will identify and ‘tag’ existing
mortgages that meet the requirements
• Anonymised data on energy performance will
be collected by the EeMAP consortium

Objectives
 Collect detailed national feedback on the draft proposals
 Begin exploring national implementation
 Focus on the Building Performance Assessment Criteria –
“what defines an energy efficient mortgage?”

Principles for
Lending
Institutions
• Sets the overall
framework
• Guidance for banks
• Banks will self-certify
12 High level principles
 Suggested finance mechanisms
 Guidance for banks on working with EE experts, valuers,
contractors and other stakeholders
 Guidance on providing consumer advice for EE finance
 Data gathering / tagging requirements

Valuation Guidance
and EE Checklist
• Guidance for banks
instructing valuers
• Guidance for valuers
• Valuation+EE Checklist
Guidance and standardised approach to gathering EE
information relating to value:
 Guidance for the bank on what to ask for
 Guidance and a “Traffic light” checklist for the valuer
 Proposed training materials to be developed – made
available under existing www.renovalue.eu training
modules

Building
Performance
Assessment Criteria
• Sets assessment criteria
and thresholds
• Gives general definitions
• Indicates future ambition
Criterion 1: Energy Performance
Criterion 2: Ongoing Performance Monitoring
Criterion 3: Quality Assurance

• In Groups:
• Create a process flow / actor map
• Try to improve / add to the existing diagram, eg:
• Make it more nationally specific
• Add required data and data flows
• Missing actors
• Where are the bottlenecks?
Use the materials provided
Workshop Exercise 1:
Process walk-through

Workshop Exercise 1: Process walk-through
Try to improve / add this:
• Make it more nationally specific
• Add required data and data
flows
• Missing actors
• Where are the bottlenecks?

Building
Performance
Assessment Criteria
• Sets assessment criteria
and thresholds
• Gives general definitions
• Indicates future ambition
Criterion 1: Energy Performance
Criterion 2: Ongoing Performance Monitoring
Criterion 3: Quality Assurance
General Definitions section explains key terms

Criterion 1 • Energy Performance
A building will qualify for an EEM if its energy performance
is either:
a) nZEB compliant (where national definition exists)
b) 20% better than current national building regulations
c) Improved by at least 30%
New Builds
Renovations

General Definitions • Energy Performance
• A calculation of delivered energy (kWh/m2 per year) – for
heating, hot water, cooling, ventilation (and lighting).
Either:
a) National Calculation Methodology (EPC calculation) or
b) other EN compliant tool
• Inputs must validated with a site visit and documentary evidence
• If a/b not available; measured energy may be used – but must be
normalised for climate and based on >2yrs data.
E.g. Operational Rating EPC.

Criterion 2 •Ongoing performance monitoring
The borrower (or 3rd party) shall report the following to the
bank (or its 3rd party):
a) Measured energy consumption - by energy carrier
(e.g. electricity or fuel) - at least once per year.
b) Revised EPC after renovation (if applicable).

General Definitions
• Measured energy
consumption
Measured energy performance:
• As recorded by a (smart) meter. Must be available for each
energy carrier
• Manual meter readings accepted if recorded at least monthly.
• Data passed to the lender, (or 3rd party) to evaluate performance
- and to the EeMAP Coordinator (anonymized)

Criterion 3 • Quality Assurance
All (EE) works undertaken should be:
1. Planned by a competent person with … nationally recognised
qualification …
2. planned and implemented … to ensure future energy efficiency
improvements are not adversely affected
3. undertaken by a competent contractor with … nationally
recognised qualifications … and approved by the lender
4. evidence of all works … submitted to the lender (or 3rd party)

General Definitions • Nationally
recognised
• Defined by national organisations representing EeMAP …
in consultation with relevant stakeholders.
• During the pilot, definitions overseen by EeMAP
Consortium.

EeMAP Governance structure to oversee future development.
Key areas of focus:
• Energy Metrics
• Ongoing Performance Monitoring and Performance Guarantees
• Building Energy/Renovation Passports
• Wider Sustainability
Future Ambition

Instructions:
• In groups
• Discuss and complete the ‘traffic light’ forms
• Red = This will not work here – explain why
• Amber = This could work but needs changing – explain
what
• Green = This can work / needs few changes – explain how
Workshop Exercise 2:
Traffic Lights

Financing Energy Efficiency - Green Mortgages Workshop

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