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Private finance for energy efficiency: New solutions for funding Europe’s energy transition

Making European societies and economies more energy-efficient will play a key role in allowing the EU to meet its climate ambitions, create growth and improve well-being, particularly to meet the goal of making the EU carbon-neutral by 2050. Whilst energy efficiency has not always been considered as an attractive investment by the financial sector in the past, this CORDIS Results Pack features 10 EU-funded projects that have set a new dynamic for accelerating and upscaling private financing of energy efficiency investments across the EU, as well as making such investments much more attractive to investors.

Climate Change and Environment
Energy

Whilst the EU has increased the amount of public funds available for energy efficiency, there is a need to further unlock private financing. In order to meet the EU’s 2030 climate and energy targets, such as cutting carbon emissions by 40 % from 1990 levels and achieving an energy efficiency target of 32.5 %, all as a part of the ambitious European Green Deal, an additional EUR 260 billion per year will be necessary over the period 2021-2030. Much of that finance will need to come from the private sector.

Overcoming the financial impediments for energy efficiency investment

The truth is, energy efficiency investments often come with high transaction costs because projects are small and not sufficiently aggregated to be interesting to investors. Another challenge is that energy efficiency investments such as deep retrofits of buildings tend to have relatively long paybacks, which is not very attractive. Investors are also not fully sure if the reality will match the level of expected savings after the energy retrofit. However, there is growing evidence that the risks associated with energy efficiency investments are lower than the level perceived by markets. So, the trick is to not only reassure investors that energy efficiency projects are overall a safe and sound business case but also help banks and other financial organisations to really understand and easily assess any and all risks and opportunities associated with a particular project. To simplify transactions and increase the confidence of financial institutions, technical and legal standardisation is highly needed at all steps of the investment value chain. The lack of standardisation of projects also prevents securitisation of energy efficiency assets (loans or equity) so that financial institutions are not able to refinance their debt on the capital markets. But there is hope on the horizon. Whereas energy efficiency investments are usually expected to be paid back exclusively through the reduction in the energy bill, there is growing evidence that non-energy benefits play a key role in the decision to invest in energy efficiency. This includes, for example, better comfort and health indoor parameters, increased building value, lower probability of mortgage default, and lower tenant turnover or vacancy rates, thus offering real potential financial and economic carrots to entice financial institutions to invest more in energy efficiency. Moreover, there is a need to set up innovative financing schemes at regional or national level in order to create the conditions for adequate supply of private finance for energy efficiency investments. EU or nationally funded technical assistance programmes (EIB-ELENA, EASME PDA) support the set-up of such schemes. Innovative financing schemes for energy efficiency aim to progressively maximise the leverage ratio of public funds to private finance. Finally, finance providers, consumers, and public and private bodies should talk to each other to find workable solutions to upscale energy efficiency finance. The EU facilitates such dialogue through Sustainable Energy Investment Forums and the Energy Efficiency Financial Institutions Group (EEFIG).

Showcasing the 10 projects leading the way

This CORDIS Results Pack specifically introduces you to 10 EU-funded projects that have been working to develop tools and solutions that will help to accelerate the financing of energy efficiency investments, as well as offering concrete demonstrations that these solutions have been extensively tested, are ready and can be scaled up further. For example, the ESI Europe project has devised a turnkey solution for SMEs wary of the risk of investing in energy efficiency, which has been presented to relevant SMEs in Italy, Portugal and Spain, and has already achieved support from major insurance companies and financial institutions. Then we have the EeDaPP project that has designed and delivered a market-led protocol to enable the recording of data related to energy-efficient mortgage assets made accessible through the use of a common data portal and EuroPACE that has developed a scalable on-tax financing mechanism, modelled on a similar mechanism from the United States, to unlock the huge potential for energy-saving technologies for European households. Meanwhile, QualitEE, has provided a toolkit for quality assessment, financial assessment, best practices and a dedicated procurement handbook for energy efficiency projects that aims to build trust between consumers, suppliers and financiers. The SMARTER project has worked to shed light on the benefits of greener homes and help potential buyers understand how best to sign up, at the same time helping investors and developers understand energy performance criteria. Finally, the SUNShINE project has undertaken the mammoth task of prolonging the lifetime of old Soviet-era residential buildings in Latvia whilst making them more energy-efficient. This was achieved through the use of energy performance contracting (EPC), of which a key feature is that the provider, an energy service company (ESCO), guarantees energy savings.

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