EPEC and Energy Efficiency Stuart Broom 26 November 2012, Bratislava SFEI Energy Investment Day

EPEC and Energy Efficiency

Stuart Broom26 November 2012, Bratislava

SFEI Energy Investment Day

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EPEC: Who we are and what we do


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• Established in September 2008;

• A unique cooperative initiative of the EIB, the European Commission and EU Candidate and Member States;

• International team of 18 professionals;

• Membership: Initially 20, EPEC now numbers 35 Members;

• Excellent engagement from Members with more than 120 participations annually in EPEC working groups

The European PPP Expertise Centre


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EPEC Mission

• Collaborative Working – Information sharing through member working groups;

• Institutional Strengthening – Policy and programme support through bilateral working with member organisations;

• Helpdesk – Service offered to members providing rapid responses to enquiries

• Sharing information, experience and expertise;

• Strengthening the organizational capacity of public authorities to develop PPP programmes;

• Promoting good practice across the public sector

EPEC’s activities: EPEC works by:


To help the public sector deliver more, and better, PPP deals

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Why EPEC?

•Clear public sector need for private sector knowledge and expertise

Why now?

•Energy Efficiency is key part of EU 2020 strategy;

•The Energy Efficiency Directive recently approved imposes energy saving obligations on Member States;

•The Cohesion Policy proposals for 2014 -2020 allocate a significant amount of funding to Energy Efficiency and Renewable Energy;

• ELENA, JESSICA, EEEF to support investment in Energy Efficiency/Renewable Energy



Energy Efficiency (EE) Mandate

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Raising awareness within national authorities on:


• EU Legislation and financing framework related to Energy Efficiency (EE) and Renewable Energy (RE) in buildings;

• Structural and Cohesion Funds available for investment in EE and RE;

• Energy Performance Contracting (EPC)

Energy Efficiency (EE) Mandate

7EPEC and Energy Efficiency

Energy Performance Contracting (EPC) Campaign• Launched by DG ENER in October 2012;

• Awareness of EPC at national, regional and local levels;

• Series of practical workshops to increase knowledge, build confidence and share experience;

• Three pillars working to complement each other: EPEC, ManagEnergy and Covenant of Mayors


EPC Campaign Structure


Energy Performance Contracting (EPC)


Energy Performance Contracting (EPC) and Energy Service Companies (ESCOs)

• Private sector expertise to design, implement EE investments and optimised operation• Building owner get access to outside capital for projects by transferring the risk to the ESCO• Guaranteed/ Shared savings based on actual EE performance, reduced operating costs • Immediate benefits: upgrade with modern, reliable EE equipment; comfort conditions; reduced

carbon emissions • ESCOs can provide turnkey solutions and comprehensive measures (deep retrofits)• Potential for off balance sheet financing on commercial basis (factoring/forfeiting)


Energy services include energy analysis and audits, energy management, project design and implementation, maintenance and operation, monitoring and evaluation of savings, property management, and energy and equipment supply

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The EPC Opportunity

Source: International performance, measurement and verification protocol, EVO, 2010


Comparative perspective - European ESCO market (2010)


Estimated EU market size at €6.7-8.5bn / potential up to €25bn

Data source: Energy Services Companies Market in Europe. Status Report 2010– DG Joint Research Centrehttp://publications.jrc.ec.europa.eu/repository/bitstream/111111111/15108/1/jrc59863%20real%20final%20esco%20report%202010.pdf

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Current EU Issues


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Energy Efficiency Directive (EED)A new regulatory framework that provides an opportunity to develop the EPC market:

• Article 3 – Required renovation of 3% of central government buildings

• Article 7 – Energy efficiency obligations 1.5% target for energy companies to be met

• Article 8 – Obligation for large companies to carry out mandatory energy audits

• Article 19 – Removal of barriers to energy efficiency in accounting rules

• Article 20 – Maximising the benefits of multiple financing schemes


Timetable for implementation April 2013 : Member

states present their national programmes for the implementation of the Energy Efficiency Directive;

2014, 2016: European Commission reviews the Directive


Cohesion Policy Proposals 2014 -2020

• Cohesion Policy provides the major EU level investment framework for EE/RES, accompanying the EU regulatory framework;

• The ERDF, CF and EAFRD can contribute to accelerating the implementation of EU legislation on renewable energy and energy efficiency, in particular the Energy Performance of Buildings Directive, the Energy Services Directive, the Renewable Energy Directive and the Strategic Energy Technology Plan

EPEC and Energy Efficiency 17

Cohesion Policy 2014 - 2020• Adoption of Commission proposal in October 2011• Negotiations ongoing in the Council

• Mission: Reduce disparities between Europe's regions strengthening economic, social

and territorial cohesion; Contribute to the Europe 2020 Strategy for smart, sustainable and inclusive

growth; Need to increase the performance and impact of the funds:

Ex-ante conditionalities; Thematic concentration of funds: 11 thematic objectives linked to the Europe 2020

Strategy


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Cohesion Policy 2014 – 2020: Investments in Sustainable Energy

• Promoting the production and distribution of RES;

• Promoting EE and RES use in SMEs;

• Supporting EE and RES use in public infrastructures and in the housing sector;

• Developing smart distribution systems at low voltage levels;

• Promoting low-carbon strategies for urban areas.


Supporting the shift towards a low-carbon economy in all sectors – 5 investment priorities proposed:

Key actions for Investment• Innovative renewable energy technologies, in particular technologies

mentioned in the SET-Plan and in the Energy Roadmap 2050, along with 2nd and 3rd generation biofuels;

• Supporting marine-based renewable energy production, including tidal and wave energy;

• Investment in the wider use of Energy Performance Contracting in the public buildings and housing sectors;

• Energy efficiency and renewable heating and cooling in public buildings, in particular demonstration of zero-emission and positive-energy buildings, and deep renovation of existing buildings to beyond cost-optimal levels

• EE and RES in SMEs, including information campaigns;• Integrated low-carbon strategies and sustainable energy action plans for

urban areas, including public lighting systems and smart grids;


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What will be available?

Classification of Regions for the MFF 2007 - 2013

Classification of Regions for the MFF 2014-2020

Minimum % allocation to

EE/RE

Regional Competitiveness and Employment

More Developed Regions (GDP per capita >90% of the EU27

average) 20%

Convergence Phasing outTransition Regions (GDP per

capita between 75% and 90% of EU27 average)

20%Regional Competitiveness and

Employment Phasing in

Convergence Less Developed Regions (GDP per capita <75% EU27 average) 6%


Cohesion Funds Principles

• Mainly private sector investment. MS/regions to ensure that public funding complements private investment, leveraging it and not crowding it out;

• In EE sector, consider option of creating value for energy savings through market mechanisms before public funding (ESCOS);

• Financial instruments to be used where potential for private revenue or cost savings is large;

• For physical investment, grants to be used primarily: to address market failures; to support innovative technologies; to support investments beyond cost-optimal EE performance: ensure

energy savings and GHG emission reductions above "business as usual"!


Instruments Available


ELENA


ELENA at a glance


Eligibility - investments


The prior identification of an investment programme is a prerequisite for submission of an ELENA application

Eligibility – entities and activities


Examples• Province of Milan

Context - the Province is a supporting structure under the Covenant of mayors Objective - assistance for small or medium-sized municipalities in the refurbishment of

public buildings Investment scale: ELENA contribution: EUR 1,95 m / expected investment: EUR 90 m Support provided under ELENA

Setting up a support unit Procedure selection for implementation of investments, via ESCO’s, building lots Preparation of calls for tender and negotiations with bidders

State of advancement - tender under EPC for ESCOs published for 100 schools

• Other supported projects Cities: Paris, Greater London Authority, Villa Nova de Gaia Provinces and municipalities : Milan, Chieti; Barcelona, Modena (part of program)


JESSICA


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JESSICA at a glance JESSICA: Joint European Support for Sustainable Investment in City Areas

Objective: invest Structural Funds in a revolving way to urban projects, including EE

• Initiative of the EC (DG REGIO) launched in 2006 together with EIB and CEB to establish a common approach for financing urban development and strengthening the urban dimension in cohesion policy through repayable assistance

• Investments in sustainable urban transformation (brownfields/city regeneration, renewable energy, energy efficiency, clusters’ development, transport, tourism/public service infrastructure)

Overall JESSICA objectives

• To increase Structural Funds’ efficiency and productivity

• To increase leverage

• To exploit new partnerships and synergies

Use of innovative financial instruments allowing for the reutilization of resources invested in the urban sector

Mobilize public/private resources for investments in projects being part of an integrated urban development schemeUse of managerial, financial and implementation competencies of the private sector and IFIs such as EIB


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The structure of JESSICA

URBAN DEVELOPMENT FUND (UDF)URBAN DEVELOPMENT FUND (UDF)

MEMBER STATEVia a designated Managing Authority


Holding Fund (HF)Holding Fund (HF)

Projects forming part of an Integrated Plan for Sustainable Urban Development

OTHER INVESTORS(Public & Private)



optional

IFIs/Public Agencies/ Banks

IFIs/Public Agencies/ Banks

Investment (equity, loan or guarantee)

CITIESCITIES

EUROPEAN COMMISSIONStructural Funds

EUROPEAN COMMISSIONStructural Funds



Holding Fund (HF)Holding Fund (HF)



State of play of existing JESSICA mandates:

•EUR 1.9 bn of Structural Funds committed to 23 operations in 11 Member States

• 18 (out of 19) HFs are managed by EIB (EUR 1.8bn) under which 37 UDFs created so far;

•Several projects financed by UDFs “on the ground”•Energy efficiency UDFs established in London and Lithuania; energy focused HF established in Spain; energy components constitute also part of traditional UDFs elsewhere

JESSICA: EU state of play and EIB role withinEIB role in JESSICA:•Acting as a Holding Fund (HF) manager on behalf of Managing Authorities (i.e. managing OP contributions, arranging selection/establishment/investments into UDFs etc.)

•Advising and assisting national, regional and local authorities in JESSICA implementation (e.g. Evaluation studies, Technical Assistance services)

•Promoting the use of UDFs and best practice across Europe


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5

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55

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72

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UDFs set up under EIB-managed HFs

HFs managed by EIB

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UDFs established directly without HF

1 HF set up with national FIs4

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JESSICA energy projects: Possible types and added value

JESSICA has:• Financial resources and products, structure and experience in working with

urban/city areas to provide energy solutions for sustainable urban development• Network to share information and best practice experiences • Close relationship with other EIB initiatives, e.g. ELENA and JASPERS

Renewable Energy• Solar, biomass, wind

Clean Transport• Electric vehicles, including automobiles, motorcycles

and bicycles • Fleet management (improvement of energy

efficiency)

Energy Efficiency, Co-generation and Energy Management • Renovation or extension of existing district heating or

cooling networks; high-efficiency combined heat and power

• Energy savings/energy efficiency in buildings


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Example : JESSICA scheme in Lithuania

JESSICA Holding Fund managed by EIB

Contingentloans

Modernisation Loans

Urban Development Fund

Lithuanian banks:

Repayments

PROJECTS:Eligible energy efficiency projects in multi-apartment buildings

Ministries of Finance and Environment contribution of EUR 227m from Operational Programme:

«Promotion of Cohesion 2007-2013»

Investment Committee

HousingHousing and Urban and Urban Development Development

AgencyAgency

Technical assistance

BORROWERS:Individual owners of apartments in multi-apartment buildings / administrators of commonly used premises of multi-apartment buildings


Example : JESSICA HF London (London Green Fund):

Low risk/low returnHigh risk/high return

• Aiming to deliver outputs/impacts of job creation, carbon reduction, and energy usage savings

Energy EfficiencyUDF

£35m

London Green Fund£100m

Managed by EIB

Greater London Authority

£50m

£32m£18 m

Urban Projects in Greater London area and forming part of the London Plan

Private finance

WasteUDF

Equity type investment

Loan type investment

Greener housingUDF

£12m

In procurement phase

£400m loan for high energy efficiency new build and retrofit of existing social housing (expected to be signed in Dec 2012)

£50m


EEEF



•Stands for European Energy Efficiency Fund •EEE F is dedicated to mitigating climate change through market-based financing in the EU Member States • Its aim is to support all EU Member States to achieve the ambitious EU climate targets (20/20/20)• How: Financing Energy Efficiency (EE) and Renewable Energy (RE) projects in the public sector at the local level • Beneficiaries: Municipalities, local or regional authorities; public and private entities acting on their behalf (i.e. utilities, public transportation providers, social housing associations) • What: Investment in EE (70%), RE (20%), Clean Urban Transport (10%)

EEEF at a glance


•Initial capital of euro 265 M—European Commission: 125 M—European Investment Bank: 75 M—Cassa Depositi e Prestiti: 60 M—Deutsche Bank: 5 M

•Target size: euro 500/600 M

•Form: SICAV, investment in forms of loans, guarantees or equity. Bankable projects. No grants.

Structure of the Fund


•Energy Efficiency (EE) and Renewable Energy (RE)—Buildings—CHP (including micro-cogeneration) and district heating/cooling, in particular from RE sources, with full usage of ICT—Street-lighting, electricity storage solutions, smart meters, smart grids—Decentralized energy sources and their integration in local grids —Energy storage

•Clean Urban Transport—EE/RE technologies, with an emphasis on electric and hydrogen vehicles

Eligible Investment


• Innovative financing according to needs: junior loan, convertible debt, equity participation, tailor-made senior loan (longer duration or grace periods), EPC as collateral to secure a loan, forfeiting scheme. Fund can also operate as sole investor

• Long maturity: flexible, up to 20 years for debt

• Technical Assistance (TA): euro 20 M in total grant for project development phase, up to 90% of eligible costs. Linked with EEEF funding. Based on ELENA model.

• Fast & flexible procedures : no more than 6 months from pre-screening until financing

Advantages of EEEF compared to other market instruments


• Municipal link • Public authorities should have concrete objectives to mitigate climate change• At least 20 % primary energy savings for EE projects (higher for buildings, increase of 2 categories)• Min. 20 % reduction of CO2 equiv. for RE and transport• Compliance with EU legislation (RE directive, CHP…)• Only proven technologies (and specific criteria for technology may apply)•Size: 5-25 M€, case-by-case basis•Strong support for ESCOs providing guaranteed energy savings•Eligibility check available on EEEF website : http://eeef.eu/eligibility-check.html

Eligibility Criteria


Project Description Case Study: Jewish Museum Berlin

Partners Jewish Museum Berlin, Johnson Controls, EEEF

Measures • Installations of innovative LED-technology

• Installation of new ventilation system

• Optimization of air management• Heat recovery and installation of

electrical expansion valves and others

Results • Reduction of CO2 emissions 1,812 t p.a., approximately 55% compared to baseline

• Guaranteed energy savings of €294,327 p.a. (43.2%)

Case Study: Jewish Museum Berlin


Financing Structure

Source: EEEF

EEEF(Purchaser)

ESCO (Seller)

JMB(Employer)

2. Forfaiting agreement: purchase of 70% of receivables/energy savings (limited recourse)

1. Implementation of EE measures according to the Energy Performance Contract (EPC)

3. Pays receivable with savings

4. Forwards sold part of the receivables/energy savings to EEEF

Savings Guarantee

Case Study: Jewish Museum Berlin

• Key data:— Financing volume: approx. €1.7 m — Duration of financing: 10 years — Quarterly interest and principal payments

• Highlights: — Pilot project with the forfeiting structure — Attractive investment instrument to support advanced projects — Winner of European Energy Service Initiative’s Award


Investment Characteristics

Stuart Broom

[email protected]: +352 4379 86835

European PPP Expertise Centre

[email protected] www.eib.org/epecTwitter: EpecNews

Telephone: +352 4379 22022Fax: +352 4379 65499


Documents

EPEC and Energy Efficiency Stuart Broom 26 November 2012, Bratislava SFEI Energy Investment Day