Alternative financing schemes for energy efficiency in buildings A presentation of paper 3-221-13 of the ECEEE Summer Study 2013 Hyères, 5 June 2013 Adrien BULLIER Christophe MILIN Project officer Economist Intelligent Energy Europe programme, European Commission ADEME abullier@gmail.com christophe.milin@gmail.com The sole responsibility for the content of this presentation lies with the authors. It does not necessarily reflect the opinion of the European Commission or ADEME, which are not responsible for any use that may be made of the information contained therein.
Looking for the right tool… To achieve the EU's 2050 objectives we need (among others): Deep renovation of buildings (50%-80% savings, investments on building envelope) + A higher renovation rate Investments required = € 60bn/year on buildings The only adapted financial resource is the future energy savings Current schemes not scalable or generate lower savings (20-40%): Grants and tax incentives have a direct impact on public budgets Soft loan schemes are limited by householders' debt capacity Energy performance contracting focusses on HVAC systems The absence of proven, scalable and sustainable financial models is a key obstacle to make those investments happen There is already a lot happening across Europe… A. Bullier, C. Milin – Alternative financing schemes for energy efficiency in buildings – ECEEE Summer Study 2013 - This presentation requires oral explanations 2
Financing deep renovation of buildings Energy savings Very insulated building envelope Factor 4 / Ventilation and air tightness low energy + HVAC (+ Renewables) retrofit + Regulation / O&M Insulated building envelope Deep (+ Renewables) renovation + HVAC + O&M HVAC HVAC + O&M systems Low Operation & hanging maintenance Payback / fruits cost 5 y 15 y 25 y 50+ y A. Bullier, C. Milin – Alternative financing schemes for energy efficiency in buildings – ECEEE Summer Study 2013 - This presentation requires oral explanations 3
Energy performance contracting Can it be adapted for deep renovation? 3. Lower cost of capital to reduce 2. Extra contribution to reimburse the contract the investments: grants or duration contribution of building owner At the end of the contract, cost savings are for the building owner Energy cost (before) Guaranteed energy saving are used 1. Extension of Energy Cost contract duration to to repay the investment allow payback of deep renovation W O Energy cost (after) R K S Contract starts Contract ends A. Bullier, C. Milin – Alternative financing schemes for energy efficiency in buildings – ECEEE Summer Study 2013 - This presentation requires oral explanations 4
Supporting EPC uptake… What is an EPC? With more buildings I How much savings can we do? can level risks and How to make it bankable? reduce transaction costs How to procure an EPC? Berlin Energy Savings Partnership Pooling Market facilitation Energy service Assistance to building owners companies Owner A Audits Performance Owner B requirements Procurement (negotiated Technical procedure or specifications competitive Legal framework dialogue) Owner C Bundling IEE project IEE project IEE project MLEI ENSAMB MLEI PARIDE MLEI Accelerate (Norway) (Italy) (Spain) A. Bullier, C. Milin – Alternative financing schemes for energy efficiency in buildings – ECEEE Summer Study 2013 - This presentation requires oral explanations 5
Bundling EPCs to reach a critical size Contractual options for joint procurement Beneficiary Back-to-back 1 investment 1 Beneficiary Ad hoc structure Contractor contracts contract Beneficiary Shared liability Beneficiary 1 investment 2 Contractor contract Beneficiary Beneficiary Shared procurement with X packages Beneficiary X investment 3 Beneficiary Contractor contracts Beneficiary IEE project MLEI PARIDE (Teramo, IT) A. Bullier, C. Milin – Alternative financing schemes for energy efficiency in buildings – ECEEE Summer Study 2013 - This presentation requires oral explanations 6
Disconnecting debt from the building owner - Using the UK's Green Deal IEE project MLEI Newinretro Newcastle (UK) Interest rates @ 7% / 25 y ! => low or medium savings Source: Martin Walker, Newcastle City Council A. Bullier, C. Milin – Alternative financing schemes for energy efficiency in buildings – ECEEE Summer Study 2013 - This presentation requires oral explanations 7
Public third-party investment operators to develop the market – French pilots OSER (Rhône-Alpes, public buildings Energies Posit'If (Ile de France, condominiums) Source: Caisse des Dépôts et Consignations, 2010 A. Bullier, C. Milin – Alternative financing schemes for energy efficiency in buildings – ECEEE Summer Study 2013 - This presentation requires oral explanations 8
Energies POSIT'IF: public third party investment operator for condominiums "Local facilitators": Condominium IEE project Mature energy agencies, projects MLEI POSIT'IF associations Administrator Ile de France (FR) Source: José Lopez, Energies POSIT'IF 1. Unconditional 2. Conditional phase with options phase EPC (guaranteed savings) Design of Equity (local authorities & Implementation measures Third party investment + or private partners) of the works Financing plan O&M with shared savings Long-term loans (low interest rates) ERDF Jessica fund (loans/equity) - potentially Architects Energies POSIT ’ IF Grants and tax incentives Thermal engineers for home owners (tbc) Sub-contracting Construction companies Soft loans for or co-contracting homeowners (tbc) agreements Energy service companies A. Bullier, C. Milin – Alternative financing schemes for energy efficiency in buildings – ECEEE Summer Study 2013 - This presentation requires oral explanations 9
Forfaiting – transferring the ESCO's debt to banks ESCO's intervention potential Bank is limited by its debt capacity Loan Annuities ESCO / 3rd party investor Bank Capex Energy savings Buy future Assign claim receivables to the bank EPC EPC EPC ESCO / 3rd party investor Guarantee O&M fees EPC with TPI EPC EPC EPC After 1-2 years, the contract becomes a safe stream of revenue Forfaiting A. Bullier, C. Milin – Alternative financing schemes for energy efficiency in buildings – ECEEE Summer Study 2013 - This presentation requires oral explanations 10
Increasing available funding Public support schemes Requires critical size and ! standardised assets Financial markets pipeline of projects Bonds Initial capital + first Factoring fund risk coverage EESF (Bulgaria) Securitisation Soft loans / interest Banks don't want to ! Bank increase their debts either rates buy down Estonia, Lithuania Loan London EE Fund Guarantee fund(s) to High interest rates kill ESCO Loan ! cover first losses savings potential BGEEF (Bulgaria) EPC Portfolio guarantee fund for payment delays Banks don't trust energy ! savings as revenues BGEEF (Bulgaria) A. Bullier, C. Milin – Alternative financing schemes for energy efficiency in buildings – ECEEE Summer Study 2013 - This presentation requires oral explanations 11
Scaling up Public intervention needed ! 20% of EU structural funds allocated to EE and RES = € 17bn (2014-2020) = 2% of required investments by 2020 ( € 115bn / year) Use public subsidies to leverage private funding "Jessica" funds using EU Structural funds for soft loans (Estonia, Lituania, London), guarantees on loans, or equity Project development assistance: € 1 in grant leads to € 20 invested (ELENA, MLEI PDA – IEE programme) We have all the pieces of the puzzle! But the vision is lacking … Diffusion of the existing models is essential to replicate them Massive capacity building is needed for public authorities A. Bullier, C. Milin – Alternative financing schemes for energy efficiency in buildings – ECEEE Summer Study 2013 - This presentation requires oral explanations 12
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