Periodic Reporting for period 3 - FALCO (Financing Ambitious Local Climate Objectives)
Reporting period: 2020-06-01 to 2022-02-28
FALCO (Financing Ambitious Local Climate Objectives – 2017-2021) is an EU horizon 2020 funded project aimed at developing financing solutions needed to achieve the ambitious objectives that are formulated in the numerous Flemish local climate action plans.
The main objective of the FALCO project is to develop and pilot financing solutions that lift existing financial AND non-financial barriers, and to prove these solutions’ validity by realising a total investment portfolio of ca. € 18 million in 3 main domains: 1) renovation of public buildings, 2) renovation of private buildings, and 3) energy-efficiency investments for SMEs.
The main objective of the FALCO project is to develop and pilot financing solutions that lift existing financial AND non-financial barriers, and to prove these solutions’ validity by realising a total investment portfolio of ca. € 18 million in 3 main domains: 1) renovation of public buildings, 2) renovation of private buildings, and 3) energy-efficiency investments for SMEs.
Four breakthrough projects have been identified for which financial and non-financial barriers were too high for project owners to reach high ambition goals in energy efficiency and deep renovation: social houses, private houses, public buildings and SME's. For all of these breakthrough projects, the barriers have been identified and described and possible solutions to overcome these barriers have been analysed. For three of the breakthrough projects, a tailored financial solution has been worked out; for two of the breakthrough projects, the financing solutions as developed during the FALCO project has been piloted and is being upscaled nowadays. The characteristics of the solutions that have been developed for the breakthrough projects are illustrated in the Figures below.
Energy renovation - private homes: a personal loan has been developed with the following features, which address key market barriers: a loan amount of up to €50,000 to allow deep renovation investments, a loan period of up to 20 years to limit monthly instalments, technical assistance services complementing the loan to assist borrowers in making the right renovation choices. The ER2.0 loan is targeted at average income households, but it also allows (low-income) households that do not meet loan approval criteria to benefit from the loan, subject to an additional public guarantee covering the credit default risk.
Figure 1 - Structure of the ER2.0 loan
Small and Medium Enterprises: to address typical challenges SME's are facing, the solution combined two or more of the following: pooling of buildings by focusing on network companies to reduce the transaction cost, integrating renewables and energy-saving measures into one project, so as to combine low-hanging fruit with measures having a longer payback time, which increases overall energy-savings, project financing for bigger projects and a debt-sale approach for smaller sized projects.
Figure 2 - ESCO light combination with a sale of receivables without recource
Public buildings: The solution focuses on strategic real estate planning based on the following key principles: (i) start with an analysis of actual housing needs, followed by the sale of real estate assets not in line with these needs and use the proceeds to support the negative business case of deep energy renovations in the core portfolio, (ii) when investing in the core portfolio, it is important to make maximum use of 'natural renovation moments' (natural trigger points) and synchronize renovations by forming building clusters that will be tackled jointly so as to increase tendering efficiency and (iii) Buildings with heritage value require an alternative strategy, which may consist in seeking a different balance between reducing energy demand and using renewable energy.
Figure 3 - Staged (phased) approach, using natural renovation moments.
Overarching lessons learned
Barrier-solution matrix – We learned that building an effective financing solution starts with clearly describing the financing problem that needs to be solved. This problem identification and analysis is essential to allowing an efficient search for an effective solution to the financing problem at hand. We developed a barrier-solution matrix supporting the identification of relevant building blocks that will help you design a solution that addresses your financing problem.
As illustrated by the financing solutions presented above, building a bespoke financing solution will often require a combination of different complementary solutions. To assist you in selecting the right combinations, the matrix also provides an indication of the scale (micro, meso, macro) and the ambition level (low, medium, high) that is best suited for a particular solution.
Figure 4 - barrier / solution matrix
Source regionally, allocate locally – The FALCO experience points to benefits from a multilevel cooperation based on central sourcing of financing organised at the regional level and allocation of these centrally sourced means by local authorities in accordance with their local climate change plans (local autonomy). Such regional sourcing allows optimal use of economies of scope and scale and facilitates the interaction with financial markets (single point of contact).
Need for a long-term shared vision and strategy on financing ambitious climate objectives – The current energy financing landscape is still characterised by a notable focus on voluntary action, which leads to a sub-optimal use of public resources. Moreover, this absence of a broadly shared vision on strategy and instruments has led to a myriad of climate funds, subsidies and ad hoc stand-alone solutions, which increases the management cost and reduces the effectiveness of these fragmented initiatives. While these stand-alone solutions have resulted in interesting experiments, isolated financing initiatives have hardly ever known a significant upscaling.
The many barriers encountered during the FALCO project point to the urgent need for a full-fledged financing vision and strategy on how the Flemish region as a whole will finance the transition to a climate-neutral society. This will notably require building a shared vision on the role of the societal actors with regard to financing (including local and regional authorities), and the translation of that vision into a financing strategy and solutions that are able to achieve the ambitious climate objectives of both the Flemish region and the local authorities.
Energy renovation - private homes: a personal loan has been developed with the following features, which address key market barriers: a loan amount of up to €50,000 to allow deep renovation investments, a loan period of up to 20 years to limit monthly instalments, technical assistance services complementing the loan to assist borrowers in making the right renovation choices. The ER2.0 loan is targeted at average income households, but it also allows (low-income) households that do not meet loan approval criteria to benefit from the loan, subject to an additional public guarantee covering the credit default risk.
Figure 1 - Structure of the ER2.0 loan
Small and Medium Enterprises: to address typical challenges SME's are facing, the solution combined two or more of the following: pooling of buildings by focusing on network companies to reduce the transaction cost, integrating renewables and energy-saving measures into one project, so as to combine low-hanging fruit with measures having a longer payback time, which increases overall energy-savings, project financing for bigger projects and a debt-sale approach for smaller sized projects.
Figure 2 - ESCO light combination with a sale of receivables without recource
Public buildings: The solution focuses on strategic real estate planning based on the following key principles: (i) start with an analysis of actual housing needs, followed by the sale of real estate assets not in line with these needs and use the proceeds to support the negative business case of deep energy renovations in the core portfolio, (ii) when investing in the core portfolio, it is important to make maximum use of 'natural renovation moments' (natural trigger points) and synchronize renovations by forming building clusters that will be tackled jointly so as to increase tendering efficiency and (iii) Buildings with heritage value require an alternative strategy, which may consist in seeking a different balance between reducing energy demand and using renewable energy.
Figure 3 - Staged (phased) approach, using natural renovation moments.
Overarching lessons learned
Barrier-solution matrix – We learned that building an effective financing solution starts with clearly describing the financing problem that needs to be solved. This problem identification and analysis is essential to allowing an efficient search for an effective solution to the financing problem at hand. We developed a barrier-solution matrix supporting the identification of relevant building blocks that will help you design a solution that addresses your financing problem.
As illustrated by the financing solutions presented above, building a bespoke financing solution will often require a combination of different complementary solutions. To assist you in selecting the right combinations, the matrix also provides an indication of the scale (micro, meso, macro) and the ambition level (low, medium, high) that is best suited for a particular solution.
Figure 4 - barrier / solution matrix
Source regionally, allocate locally – The FALCO experience points to benefits from a multilevel cooperation based on central sourcing of financing organised at the regional level and allocation of these centrally sourced means by local authorities in accordance with their local climate change plans (local autonomy). Such regional sourcing allows optimal use of economies of scope and scale and facilitates the interaction with financial markets (single point of contact).
Need for a long-term shared vision and strategy on financing ambitious climate objectives – The current energy financing landscape is still characterised by a notable focus on voluntary action, which leads to a sub-optimal use of public resources. Moreover, this absence of a broadly shared vision on strategy and instruments has led to a myriad of climate funds, subsidies and ad hoc stand-alone solutions, which increases the management cost and reduces the effectiveness of these fragmented initiatives. While these stand-alone solutions have resulted in interesting experiments, isolated financing initiatives have hardly ever known a significant upscaling.
The many barriers encountered during the FALCO project point to the urgent need for a full-fledged financing vision and strategy on how the Flemish region as a whole will finance the transition to a climate-neutral society. This will notably require building a shared vision on the role of the societal actors with regard to financing (including local and regional authorities), and the translation of that vision into a financing strategy and solutions that are able to achieve the ambitious climate objectives of both the Flemish region and the local authorities.
As is illustrated above, different financing solutions have been developed during the FALCO project, which have been piloted and are now ready for upscaling. Investments until ca. 27 mio € have been realised, with energy reductions that go beyond the business as usual. Capacity building at local and regional authorities (both within Flanders / Belgium as in other countries in Europe) has been realised during numerous meetings, webinars, conferences, ... With this capacity building, we believe to have contributed to the acceleration of the realisation of the local climate action plans of local authorities. As a consequence of the investments realised - and the solutions developed in order to realise a multiple of investments in the years to come, the employment in the building sector in Flanders (energy renovation, energy efficiency technology sector) will increase.