Financing of Energy Efficiency: Influences on European Public Banks Actions and Ways Forward

Transcription

1 FinancingofEnergyEfficiency:InfluencesonEuropeanPublicBanks ActionsandWaysForward ChristianHudson,AnneSchopp,KarstenNeuhoff reportfrompilotstudybydiw,climatepolicydepartment Inco-operationwithIDDRI,EnergiaKlubandUniversityofVigo. Berlin,May2013

2 ExecutiveSummary GreaterdiscussionbetweenpolicymakersandpublicbanksinEuropeonthewaystostimulate marketsinenergyefficiencywouldhelpbothpolicymakersandbanksachievetheirgoalsfor financingofenergyefficiency. Thisdiscussionwouldbeparticularlyhelpfulforformationandimplementationofthebuilding renovationroadmapscalledforintheeuenergyefficiencydirective,toinformdiscussionsof savingstargetsinthecontextofeu2030energyandclimatepolicygoalsetting,andinthe shapingandfundingallocationofeufinancialinstrumentsforenergyefficiencyunderthe financialframework. Furtherexchangewouldhelpbanksandpolicymakerstotakecomplementaryactions.Itwould needtobridgedifferingperspectivesaboutthecurrentstateofmarkets,causesofbarriersto financingandfeasibilityandbenefitsofgoalsforenergyefficiencyunderdifferentpolicyand financingconditions. Theseconclusionsarebasedonround-tablebetweenpublicbankers,policymakersandother financialexpertsheldinberlinatthestartof2013andseriesofinterviewswithpublic bankers. PublicbanksinEuropeliketheEuropeanInvestmentBank,Caissededepotetconsignations (CDC)inFrance,orKfWinGermanyareplayingkeyroleinEuropeinstimulatingmarketsfor energyefficiency.thesemarketsneedstimulationthelevelofenergyefficiencyinvestment neededintheeutoachieve2020energyefficiencygoalsareestimatedtorequireanadditional 84billionperyear,inferringthatachievingtheEU s2050decarbonisationtargetmayrequire severaltrillioneuros. ThisreportreflectsthepracticalexperiencessharedbybankersandexpertsfromacrossEurope duringtheproject.threeanalyticalfindingsofparticularimportancecomeout: 1)Theprivateinvestmentmarketforenergyefficiencyisundeveloped,andneedspublic actors supporttoreachself-sustainingsize. Unfamiliarity,undevelopedtechnicalexpertise,uncertaintyaboutfuturemarketsandother technicalissuesactashurdlestogrowthoftheprivatefinancialmarketinenergyefficiency. Overcomingthesewouldenableaccesstothesizeoffundingneededtomeetpolicygoals. 2)PublicBanks objectivesandoffersonenergyefficiencyarefrequentlydeterminedby mixofidiosyncraticinstitutionalarrangements,variedinformationsetsandpersonal factors,notonlybypublicpolicygoals. Eachpublicbankisdifferent,withitsownmandate,contextandinstitutionalarrangements. Alloftheseinfluencetheshapeofthebank sactivitiesanditsvariousobjectivesthatrelate toenergyefficiency,forexampledeterminingtheselectioncriteriaforenergyefficiency projectfinancing. ii

3 iii 3)Thelevelofpublicfinancinggoingintosupportofthefinancemarketforenergy efficiencyisoftenheldbackbyanunder-estimationwithingovernmentsandpublic banksoftheeconomicandsocialbenefitsthatitwouldbring. Unfamiliaritywithinvestmentinenergyefficiency,theindirectnatureofsomeofthe benefitsandrelativeabsenceofbenefitsanalysiscombinestocreatecertaininertia againstfundingofenergyefficiency,despiteverystrong,butoftenunappreciated,macroeconomiccaseforenergyefficiency,andpublicsupportforprivatemarketgrowth. Discussionssuggestedfewroutestomakeprogressontheseissues: A)Widerdisseminationanddiscussionofthepubliceconomiccaseforenergyefficiency financing FurtherproductionanddisseminationofanalysisofEU,ornational,macro-economic benefitsfromexpandedinvestmentinenergyefficiencywouldbeonekeystepinmoving publicandprivateresourcesintothisarea. Thelevelofbenefitsincreasesastheindirectbenefitsreducingunemployment,improving balanceoftrade,increasingnetpublicbudgetrevenues,reducingfuelpoverty,reducingco2 emissionsaretakenintoaccount. Publicbankactivitiesthatfacilitatefutureprivateinvestmentbyovercomingbarriershave additionaleconomicvalue,from jumpinghurdles to,orcatalysing,greaterinvestment, althoughthisishardlyeverquantified.widerunderstandingofthenatureofthesehurdles wouldincreaseperceptionsofthevalueofover-comingthem. B)Analysisofthepotentialbenefitsoffocussingsupportonparticularmarketsegments acrosstheeu Bringingforwardinvestmentsinenergyefficiencyatscalethatcanallowtransactioncosts ofinvestmenttobelowered,andallowsecuritisationoftheinvestmentswouldbeneededto facilitatelarge-scaleprivatedebtinvestment. Co-operationbetweenpublicbanksaroundparticularmarketsegmentsoftheEUenergy efficiencymarketcouldcreatesufficientscaleincertainmore-homogenousmarkets(eg. buildingtypes),soallowtheprogressiveovercomingofhurdles.successwouldbe dependentontheextenttowhichinvestmentinonesegmenthasspill-overeffectson marketcapacitywhichfacilitategreaterinvestmentinanother. C)Analysisofgoalsettingforenergyefficiencyfinancing,underchangingpolicy conditions Barrierstoenergyefficiencyfinancingcanonlybeprogressivelylowered,andseriesof exchangesthatleadstoconceptualisationofthepossiblerateofchangeortrajectoryin

4 energyefficiencyfinancemayhelpinsettingpriorities.thismayprovidebasisfor discussionofco-ordinatedactionbetweenpolicymakersandpublicbanks,includingmore actiononnewerformsoffinancialinstrument.forinstance,majorblocktofinancingis oftenweakdemand.publicbankscurrentlytailortheirofferstostimulatedemand,for instancesettingenergyperformancecriteriasufficientlylowtoinduceuptake.further exchangeonhowtoco-ordinatedemandpushfromfuturepublicpolicyimplementation withtheconditionsoffinancingofferscouldstep-upachievementofenergysavings. Thecreationofcredibleandtrustedtrajectoryformarketgrowthisoneofthekeyfactors forinducinginterestfromprivatefinancesourcestoenterintoenergyefficiency. FeedbackfromprojectparticipantsindicatedthattherewouldbevaluableroleforEuropean forumthatbringstogetherbankersandpolicymakerstoexchangeexperienceandperspectives ontheconnectionsbetweenpublicbankproductsandpolicygoalsandinstrumentsforenergy efficiency.diwanditspartnersareinterestedinbuildingonthenetworkcreatedinthisproject toprovidesuchforum,andinviteparticipationandco-operationinanalyticalwork. iv

5 Contents Thisreportisstructuredinthreeparts:anintroduction,summaryoffactualfindingsabout currentpracticesandtheirinfluences,andkeyissuesforthenearfuturethatwereraisedby projectparticipants: Introduction 1.Thisreport 2.IndicatorsoftheFutureFinanceMarketforEnergyEfficiency Part1:FactualFindings 3.TheroleofPublicBanks: theirmandatesandtheirobjectivesinenergyefficiency; thediversityofprogrammesandproductsofferedbypublicbankswithenergy efficiencyaspects;and thecriteriabywhichtheyselecttheirinvestments 4.InfluencesontheobjectivesofPublicBankenergyefficiencyprogrammes Part2:MakingProgressonFinancing 13 5.Keyissuesforthefuture 13 6.Bridgingpolicyandbankingperspectives:Areasforfurtherexchange 18 7.Waysforward 27 Annexes:CaseStudiesofProgrammes 29 v

6 Introduction 1.Thisreport Financingofinvestmentinenergyefficiencyisoneofthewaysbywhichpublicbanksmeet economicdevelopmentgoalssimultaneouslywithwiderpolicygoals.thisreportdescribeshow someofthepublicbanksineuropehavedonethat,andwhatcanbelearntfromtheiractivityfor thefutureachievementofeurope senergyefficiencyandeconomicgoals. Theinformationcontainedinthereportcomesmainlyfromseriesofinterviewswithpublic bankersanddiscussionbetweenbankersandotherfinancialexpertsinberlinonjanuary11 th 2013.Thisworkconstitutespilotproject,involvingpartnersacrosstheEU 1 ledbydiw. By publicbanks wemeanfinancialinstitutionssetupbygovernmentswithmandateto deliversocialgoals:forexample,theeuropeaninvestmentbank,kfwingermany,the HungarianDevelopmentBank(MFB). 2.IndicatorsoftheFutureFinanceMarketforEnergyEfficiency TheEUhasanindicative20%energyefficiencygoalfor2020.Toachievethe2020energy efficiencytarget,theeucommissionestimatesanadditional 84billioneachyearwouldneedto beinvested. The2020goalsareseenassteppingstonetogreaterenergyefficiencygains.Indicative2050 targetstodecarbonisetheeueconomyimplyenergysavingsacrosstheeconomyatlevelsof investmentfargreaterthancurrentseen.toachievethe2050eu sdecarbonisationtarget, additionalenergyefficiencyinvestmentinthetrillionsofeurosareexpected. 2 Asanexampleof thescaleofthetaskto2050,thetargetforthebuildingsectoraimsatdecreasingtheco 2- emissionlevelsby88%-91%(comparedto1990levels). 3 Currentlevelsoffinancegoingintoenergyefficiencyareestimatedat 15-20bn(in2010) 4 with significantproportionofthisfinancecomingfrompublicbanks.thisimpliesthattomeet energyefficiencygoals,therewillneedtobeverylargeexpansionoffinancingintoenergy efficiency.italsoimpliesthattherearefactorsthathavesofarheldbackinvestmentinenergy efficiencythatneedtobeovercometorealisethebenefitsoftheenergyefficiencygoals. Projectpartnerswere:IDDRI(Paris);EnergiaKlub(Budapest);UniversityofVigo. 2Asanexampleofestimation,seeE3G(2012),TheMacroeconomicBenefitsofEnergyEfficiency,April 2012,usingdatafromEuropeanCommission(2011),2050RoadmapImpactAssessment,SEC(2011)288 3EuropeanCommission(2011),2050RoadmapImpactAssessment,SEC(2011)288final. EIB(2012),EnergyEfficiencyInvestmentsbyPublicBanks:EIBexperienceandstrategicview,EIB estimationfromseveralexternalstudies,presentation

7 Part1:FactualFindings 3.TheRoleofPublicBanks 3.1TheMandateandObjectivesofPublicBanks ThepublicbanksinEuropehaveeachbeensetupforslightlydifferentreasons,withdifferent mandates.forexample: theebrdwassetupin1990withthepurposeof fosteringthetransitiontowardsopenmarketeconomiesandtopromoteprivateandentrepreneurialinitiativeincentraland EasternEuropeancountriescommittedtoandapplyingtheprinciplesofmultiparty democracy,pluralismandmarketeconomies 5 theeib smandateistosupporteupolicygoalsthroughsoundinvestment,withthe mandateforinternaleuactivitiesdescribedintheeutreaty. themandateofkfw,groupofbanks,setupin1948aspartofthemarshallplan,hasthe roleofprovidingsupporttoimproveeconomic,socialandenvironmentalconditions,for whichitisdividedintodomesticandinternationaloperationalunits,andthenfurther dividedintounitssupportingspecificareasforexample:smes;housingandeducation; andlocalauthorities. Eachbank shistoryandmandateshapeitsspecificobjectivesandmeansofoperation.yet,in general,thebanksoperateasvisualisedinthesimplifiedfigure1:withsomeoftheiroperations goingthroughintermediarybanks,andsomedirectoffersoffinancialproductstoprojects. Figure1:simplifieddiagramofpublicbankactivities Public banks Mandate / Objectives Programs/ Instrument Criteria Intermediary banks Projects 5EBRDArticlesofAgreement,Article 2

8 3.2ObjectivesofPublicBanksaroundEnergyEfficiency PublicbanksinEuropecurrentlyoffervarietyofprogrammesandproductsthatsupport energyefficiencyrelatedobjectives,usuallyaimingatseveralobjectiveswithineachprogramme, including: promotingeconomicallyfeasibleprojectsthatwouldnototherwisebefinanced, creatingjobs, deliveringdirectenergysavings, buildingmarketcapacityinsupplychainandinstallationofenergyefficiency, maximisinginvestmentvolumes, maintainingsoundrisk-returnprofileforthebank, buildingtrackrecordofenergyefficiencylending, triggering,orleveraging,privateinvestment,and buildingprivateandpublicfinancialcapacityforenergyefficiencyinvestments. Ourprojectinvestigatedseveraloftheseprogrammes,andtheinformationgatheredinrelation totheseformsthemajorityoftheevidencebaseforthisreport.thebanksinvolvedwerecaisse dedepotsetconsignations(cdc)infrance,ebrd,eib,institutodecréditooficial(ico)in Spain,KfWinGermany,theHungarianDevelopmentBank(MFB)andtheCarbonTrustintheUK (whichisnotpublicbank,butplaysroleinfinancing).theprogrammesandproducts coveredbythesebanksaimatindustry,smes,residentialbuildingsandpublicbuildings.some formpartofpackagewithtechnicalassistance(e.g.theeibandkfw suseofeuropeanlocal EnergyAssistance(ELENA)programmes). Eachpublicbankparticipatingintheprojectplaceddifferentweightsoncertainobjectives. Differentprogrammeswithinthesamebankcouldoftenalsoaimatdifferentlyweightedsetof objectives.(seetheannexesforsummariesofcasestudiesonprogrammesformoredetail). Figureillustratesthis.Itshowshowintervieweesfromdifferentbanksdescribedtherelative prioritygiventodifferentobjectivesfortheirprogrammesorproductlines.intervieweeswere askedtoconsidersimplifiedsetofgroupedpriorities:deliveringdirectenergysavings ( Depth );Producingindirecteffects(includingfinancialandsupply-sidemarketcapacity development);andincreasinginvestmentvolumes.althoughachievementoftheseobjectivesis related,relativeprioritisationinthedifferentobjectivesissignificanttooutcomes. 3

9 Figure2:Relativeimportanceofobjectivesinpublicbankprogrammes Importance Very high High CDC Carbon Trust Carbon Trust / Siemens EIB + KfW EBRD MBF Medium Low Very low Depth Indirect Volumes EachlineinFigurejoinsupthestatedrelativeprioritygiventoeachofthesimplified objectivesforgivenprogramme.forexample,theuk scarbontrust sgovernment-funded interest-freeloanprogramme(representedbythetightblackdottedline)aimedprimarilyat maximisingenergysavings.latercarbontrust/siemensfinanceprogrammehadgreater emphasisonproducingfinancialreturns(shownbythesolidblackline).ebrdactivities primarilyaimatpromotingeconomicdevelopment,includingmarketdevelopment,withenergy efficiencyonemeansofachievingthis. 3.3TheDiversityofPublicBankProgrammesandProductsforEnergyEfficiency Oneresultofthediversityofobjectivesforprogrammesthatsupportenergyefficiencyisan equaldiversityofprogrammesandproductsused.theproject scasestudiessub-setofthe programmesineuropedemonstratesomeofthisvariety,althoughtheprojectdidnotlookat sometypesofinstrumentforinstanceequityfinancingwhicharealreadyemployedbysome publicbanks 6 Nevertheless,thecasestudiesillustratesomekeydifferences. SummaryFactsonProgrammesfromCaseStudies(seeAnnexesforDetail): CDC seco-prêtlogementsocial France,since2009,preferentialloansforthermalretrofits,paybackperiodof15-25years, requiredenergysavingsof80kwh/m²ormore(dependsoninitialenergyconsumption),loan amountcoupledtoenergyperformance, 1.2billionloanvolumeduring EBRD ssustainableenergyfinancingfacilities(seff) 6E.g.CDChassignificantequityinvestmentsinproperty,energyperformancecontractingcompaniesand isinvolvedin3 rd partyfinancingarrangements. 4

10 EasternEurope,WestAsiaandRussia,since2006,preferentialloans(throughlocalbanks) industrialandresidentialenergyefficiencyprojects,varyingpaybackperiods,technical expertisegivencostfree,listsofeligibletechnologiesthataremaintainedbylocalconsultants, 1.9billionloanvolumebytheendof2011. EIB senergylendingpolicy EUcountries,directfinancing(forlargeprojects)orindirectthroughintermediarybanksfor industrialandresidentialenergyefficiencyprojects,varyingpaybackperiods,technical expertisegivenorsubsidised.investmentfallsintotheenergyefficiencycategorywhenitbrings atleast20%energyefficiencyimprovementor50%ofcapexcanberecoveredthroughenergy savingsorcombinedheatandpower(chp)projects. 1.3billionofenergyefficiencyloansin2011alone,withtotalofaround6.1billioninthe periodof MFB shouseholdenergysavingloan(hesl)andpanelplusloanprogrammes (PPLP) Hungary,loansforrefurbishmentofresidentialbuildings,typicallycombinedwithgovernmentfundedgrants.Whenprojectsmeettheconditionsforgovernmentsupportedgrants,they automaticallyadditionallyqualifyfortheseloans. ApprovedHUF1.35billion( 4.5m)loansforHESLandHUF30.3billion( 100m)loansunder PPLPto31December2011. KfW seuropeanlocalenergyassistance(elena)programme EUcountries,beginningin2011,loans(throughlocalbanks)canbecombinedwithgrants (leveragefactor>20)fordevelopingandplanningenergyefficiencyprojects.atleast20% energyefficiencyimprovementrequired. KfW smunicipalfinancefacilityenergyefficiencywindow(mff-ee)andsme FinanceFacilityEnergyEfficiencyWindow(SMEFF-EE) EUcountries,since2010,loans(throughlocalbanks)canbecombinedwithgrants(leverage factor>5)forenergyefficiencyprojectsatleast20%energyefficiencyimprovementrequired, oratleast30%forrehabilitationofexistingbuildingsincludinglightingetc. CarbonTrust sgovernment-fundedsmeloanprogramme UK, ,interest-freeloanstoSMEsforenergyefficiencyequipment,includinglighting, refrigeration,paybackperiodsuptoyears,energysavingsassessmentsgivencostfree,carbon Trustcreatedprojectstreamsbydemonstratingthebusinesscasebothtosuppliersand customers.projectmustmeetcarbonreductionratiosof1tco 2600 loanvalue. CarbonTrust/SiemensFinancialServices EnergyEfficiencyFinancingscheme UK,since2011,loansatmarketratesorleasestocompaniesforenergyefficiencyequipmentby SiemensFinancialServices,technology-specificpaybackperiodofupto10years,energysaving assessmentsgivenfreelybycarbontrust,noperformancecriteria,butpaybackfromenergy savingsshouldbe<4years. 677millionloanvolume 5

11 6 3.4DiversityintheSelectionCriteriaandProcessesUsed Asthesectionaboveillustrates,thereiswiderangeofselectionprocessesandcriteriausedfor identifyinginvestmentsthatqualifiedfortheenergyefficiencyprogrammes.thesedifferintype aswellasvalue.wecancategorisemaintypesofselectioncriteria.investmentprojectsqualify where: theyuseproductsortechnologieswithenergyefficientcharacteristicsfrompre-specified list(e.g.theebrdhasspecifiedlistsofeligibleproducts/technologiesfordomestic renovationinbulgaria.);or,alternatively theymeetspecifiedresultingenergyperformanceimprovement(e.g.eibandkfw,both apply20%energyefficiencyimprovementcriteria 7 CDCrequiresenergysavingsofmore than80kwh/m²,couplingtheloanamounttoenergyperformance;or satisfyanadjustedrisk-return-paybackrequirementtakingintoaccountthenatureof energyefficiencybenefits(e.g.cdccombineslowinterestratesandlongpaybackperiods between15to25years);or thereturnprofilemeetsinvestmentcriteria(nospecificenergyefficiencycriteria,butan criteriathateconomicreturnsfromefficiencyhavesufficientlyhighpayback.e.g.mfband CarbonTrust/SiemensFinancialServicesdonotformulateanyspecificenergyefficiency criteria;or certainprocessrequirementsaremetsuchasenergyauditsbeforeprojectimplementation orenergymanagementsystems/auditsafterwards;or active,iterativediscussionofenergyefficiencybenefitsduringtheprojectselectionprocess (e.g.astheebrdcarriesout,throughexperts,forlargeinvestmentsthatcanimprovetheir energyefficiency.) Wherethepublicbankislendingthroughanintermediary,thecriteriamayattachtothe intermediarybanks projects,ratherthanthepackageoffinancingorcreditlineofferedtothe intermediary. 4.FactorsshapingPublicBanksEnergyEfficiencyObjectives Thechoiceofselectioncriteriaisprimarilytheresultoftheinterplaybetweenobjectivessetand theconstraintsthebankfaces,includingthelevelofdetailofinformationithasaccessto.ofthe differentformsofcriteriamentionedinsection3.4,eachhasqualitieswhichmakeitmore,or less,suitableforachievingbank schosenobjectivesforgivenmarketconditions. Thedesignoftheprogrammesarealsostronglydeterminedbytheobjectivesbanksets,whilst outcomesareinfluencedbyhowwellthesedesignfactorsmatchthemarketconditions.the factorswhichinfluencethebanksobjectivesarethereforeanexplanatoryfactorintheenergy savingandeconomicoutcomesthatareachieved.thereareseveralofthesefactors,inparticular includinginstitutionalfactors,inadditiontothemarketconditions. 7TheEIBlendingpolicyiscurrentlyunderreview.

12 7 Figuretriestosummarisetheinfluencesonobjectivesettinginpublicbanksforprogramme orproductwithanenergyefficiencyobjective.factors,andactors,externaltothebankare showninlightergrey;internalfactorsandactorsindarkergrey.thefollowingtextdescribesthe influences. Figure3:InfluencesonEnergyEfficiencyProgrammes State of World. Problems. Opportun -ities Government Policy Bank s Culture & Expertise Staff s Motivations & Expertise Funding Sources Bank s Shrhldrs Bank s Board Staff Operational. Strategic. Bank s Objectives Programme Objectives Information Sources Performance Metrics Actor Factor 4.1MandateandGovernance Thebanks mandateandgovernancestructureswerefoundtobestronginfluenceon programmeobjectives,withimportantfactorsbeingthestrengthoftop-downgovernanceand thedegreetowhichthebanktakesintoaccountoutsideinfluences.twoexamplesillustratethe contrast:- FortheCDC seco-logementprogrammeforenergyefficiencyinfrance,theobjectives wereprimarilydeterminedbythe Grenelle processforenvironmentalpolicyand specificallyagreedindocumentconventionbetweenthefrenchstateandcdc. Incontrast,theobjectivesfortheenergyefficiencyteamintheEBRDaremainlyselfdetermined,andcanbeseenasresultofcombinationofthebank sculture,itsexplicit climatereductiontargetandpersonalinterestsandexpertiseofthestaffworkingon energyefficiency. Directionandchoiceofinvestmentstrategyusuallycomesthroughbank sboard,whoarein turninfluencedparticularlybythebank sshareholders(whomaybeallrepresentativesof publicbodies).togethertheseinfluencetheobjectivesforthebank,andsetuptheinternal performancemetricsandworkingconditionswhichinfluencestaffaction.

13 8 Thekeydecisionmakerinapprovaloffinancingprogrammesorproductsisusuallycredit committeewithinthebank.thiscommitteeisusuallyconservativeinitsdecisionmaking,which providesbarriertoareasoffinanceoutsidethemainstreamofbank sfinancingactivities. Thedecisionmakingprocessesforapprovalofprogrammesorproductsareoftenspecificto eachbank,andtheseinstitutionalfactorshaveaninfluenceonwhether,orhowbankwilllend forenergyefficiency. Forinstance,theEBRDhasonecreditcommitteewhichdecidesoninvestmentsandthisassists investmentdecisionsinenergyefficiency.otherbanksmayhavemanydifferentcredit committees(forexample,hsbcintheprivatesectorhasmorethanonehundred),whichcan createadditionalinternalbarriers. 4.2PublicPolicyObjectives Betweenthetwoextremesoftheobjectivesettingdescribedabove,manypublicbankshave mandatetoachievepublicpolicygoals.whendoingthis,theytakeintoaccountthestateof policy.theinfluenceofpublicpolicyisparticularlystrongwhensomeofthesourcesoffunding forthebank sprogrammecomedirectlyfrompublicfunds,andhaveconditionsattachedto them. Asanexampleofanotherrouteofinfluence:theEIBhasrecentlyhaditscapitalallocation increased,inpartsothatitcanprovidemoreinvestmenttoenergyefficiency,inlinewitheu economic,climateandenergygoals.theeibhasalsotriedtoalignitsselectioncriteriawiththe 20%energyefficiencytargetfor2020. Itisalsopossibleforpublicpolicyobjectivestohavenegativeimpactonthesettingand achievementofobjectives.wherepolicyinstruments,orconditionsattachedtopublicfunding constrainthewayinwhichfinancingcanbedelivered,bankersmaynotbeabletoadjustthe financingofferstomatchthemarketconditions.thiscanreduceuptakeofthefinance,for example,whendemandisweak,highenergyperformancerequirementsaresetandotherpolicy measuresarenotusedtoboostdemand. 4.3RelevantExpertise Severaloftheobjectivessetbypublicbanksaimtoovercomesomeofthebarrierscurrently limitingothersourcesoffinancingofenergyefficiency.thisarisesoutoftherecognitionby publicbanksthatfacilitatingprivatefinanceintoenergyefficiencyiscrucial,andthattheyhave theexpertiseandtoolstoplaythemajorroleinthatfacilitation. Therelevantbarrierstofinancearewellknown(See,e.g.:IEA 8 ECOFINResearchFoundation 9 ). Thesebarriersinclude soft barriers,aswellaseconomic,financialandregulatorybarriers. 8IEA(2007).MindtheGapQuantifyingPrincipal-AgentProblemsinEnergyEfficiency.Paris:International EnergyAgency. 9ECOFINResearchFoundation,ClimateBonds,MarksmanConsulting(2012).LocalEnergyEfficiency Project:LEEP+Phase1.August2011

14 9 Takentogether,thesefactorslimitflowsofprivatefinanceintwoways:usuallytheymake energyefficiencyfinanceunattractivecomparedtoalternative,morefamiliar,investmentsthat offerstandardcommercialrisk/returnratios.inothercases,theyraisethecost-of-capitalfor privatefinanceinvestments,whichinturnreducestheeconomicattractivenessofenergy efficiency.theyinclude: perceivedhigherriskofenergyefficiencyduetofinanciers unfamiliaritywithprojects, lowlevelsofprofessionaltechnicalcapacityforenergyefficiencyandthelackofinvestment trackrecord, theuniquenessofenergyefficiencyinvestmentprojectswhichtendstoincreasetransaction costsandlimitthepossibilitiestosecuritiseinvestments, 10 lowcollateralvalueoftheinvestments,asoncethesearemade,theybecomepartoflarger infrastructureorhavelow/nosecond-handvalueasseparateitems, thecurrentfinancialcrisislimitingthepossibilitiesoftrans-borderinvestmentincountries withsignificantsovereignrisk,orviabanksexposedtodefaultrisk, publicauthoritieshavelimitsontheirabilitytotakedebtorhaveotherprioritiesfordebt financing. Publicbanksareingoodpositiontoactonthefinancialbarriersastheyhaveexpert knowledgeofthefinancialmarkets,theseconstraintsonprivatefinanceforenergyefficiency andalsothelikelyimpactsofmeasurestoremovethem.theyalsohavetheabilitytocreate financialflowsintoparticularinvestments,orthroughparticularchannels. Forinstance,manyprogrammeslendthroughintermediarybanks,whomanagethefinancingof individualprojects.thiscanbemeansbywhichtheprivatebankcapacityforenergyefficiency lendingisincreased.equally,financingbypublicbankshasthepotentialtocreateproject streamthatdemonstratestheinvestmentmarketinenergyefficiencyandthiscanreducethat obstacletoprivatebankfinance. 4.4IndividualsandIndividualMotivations furtherfactorthatconsistentlycameoutofdiscussionsinthisprojectwastheinfluenceofthe individualswithinbanks.increasingfinancingforenergyefficiencyusuallyrequiresreallocationoffundingpriorities.thisneedssomeonewithinthebankwhomakesthecaseforthat re-allocation,orwhodeliversthedesiredfinancingprogrammes.wheretheexistingroleof energyefficiencyinvestmentinbankissmallasitisinmanypublicbanks,forexamplethe HungarianMFB,theroleoftheindividualcanbeevenmoreimportantthaninbankswhere energyefficiencyfinancingislongestablished.thecharacterandexpertiseofparticular individualsthereforehasaninfluenceonthebank swork,notleastasthereputationandtrust giventotheindividualwithinthebankshapestheextentoftheirinfluence. 10RezessyandBertoldi(2010).Financingenergyefficiency:forgingthelinkbetweenfinancingandproject implementation.commissionedbyjrc;bpie(2010).financingenergyefficiencyinbuildings.background foreuropeanroundtable

15 Individualincentivesarealsofactor,eveninthesettingofobjectivesofprogrammes.Selfgenerated,personalmotivationisoneimportantaspect.Ontopofthis,theformalandinformal incentiveandrewardstructureswithinthebankinfluenceobjectivesettingand,later,delivery. Mostcommonly,weheardthat,wherethemetricofsuccessforanindividualbankerisbasedon thevolumeoflendingthattheydeliver(asisusual),thenthedeliveryofinvestmentvolumesis likelytobegivengreaterweightintheformationanddeliveryofprogrammes. 4.5Risk/Returnprofiles Publicbanksneedtomatchratesofreturntotheriskprofilesoftheirinvestment.Theymust receivesufficientinterestratesontheirproductscompatiblewiththeirfinancialstrength. Thisisoftentheessentialcriteriafortheirobjectivesandactivities,andcontrastswithmost grant-basedpolicyinstrumentsforenergyefficiencyinvestments. Often,supportfromEuropeanornationalgovernments,allowspublicbankstogatherfinance 11 andlendatratesforprojectsthataremorepreferablethanprivatebanks,whichcanallow publicbankstoachievepolicygoalsthattheprivatesectorcannotfinance.yet,riskfactorsmust betakenintoaccount Mostpublicbankslendatleastpartoftheirprogrammesthroughintermediarybanks,whotake theprojectrisk.theriskfacedbythepublicbankis,inthesecases,theriskofdefaultofthe intermediarybank,sotheriskprofileoftheintermediarybank,ratherthanprojects,isfactored intothepublicbank sdecisionmaking.thisincludesrisksrelatingtoproblemswiththebanking system,andsovereignrisk. 4.6AvailabilityofInformation Inshapingtheobjectivesandtheproductsthatdeliverthem,bankshavemanyfactualfactorsto takeintoaccount,particularlyaroundtheareasof: Thescopeofopportunityforinvestment:including o Thephysicalpotentialforenergyefficiency(forexamplethesizeandnatureof buildingstocktobecovered), o Thepotentialoftheenergyefficiencymarketinregiontosupplytheproducts andservicesneededtocarryouttheinvestment,andhowinvestmentcould impactonprices, o Thestrengthofdemandforfinance,consideringallthedifferentbarrierswhich holdbackenergyefficiencyinvestments(notjusttheonesonthefinancialside), andhowdifferingfinancialinvestmenttermswouldaffectthat. Risksofinvestingthroughintermediarybanks,andthetermsoftheofferthatwouldbe neededtomakefinancinguptakeattractivefortheintermediarybanks. Howothercharacteristicsoftheenergyefficiencyproductwillimpactonitsuptake,for instanceitsproceduralandadministrativerequirements. 11E.g.theCDCeco-loanofferslow-ratesofinterest,thatweresupportedbycross-subsidisationfromCDCs otherinvestments. 10

16 11 Howrelatedpolicyinstruments,orgrants,willinter-relatewithdemandandimpactof investments. Towhatextenttheinvestmentswillimpactonthedynamicevolutionofthefinancial market,supplysidecapacitiesordemandforenergyefficiencyprojectsinfuture. Theavailabilityofinformationontheseissues,andtheforminwhichitispresentedandcanbe takenintoaccountindecisionmaking,isoneofthefactorsinfluencingtheformationof objectives. Banksgatherinformationabouttheissuesthattheyfindmostrelevant,oftenemployingexpert consultantsinregionalmarkets.forexample,theebrdusesconsultantstoadviseontheenergy usenormsinregionalmarketsandthereforewhatwillbeconsideredfeasibleenergyefficiency measures. Oneofthekeyformsofinformationthatbankstakeintoaccountindesigningadditionalor revisedinstrumentsistheexperiencefrompastfinancingprogrammesandinstruments.public banksineuropefrequentlymeetinsmallgroupstoexchangetheseexperiences.the comparisonofprogrammesandresultsisusefulguideforfuturedecisions.newprogrammes forexample,theelenaprogrammeimplementedbyeib,kfw(andceb)startedaspilot projects,beforescalinguptoachievesignificantresults 12 Learningfromprogrammesisnotalwayseasy,andtheextentofdataavailabilityiskeyfactor. Someoutcomesarenoteasytoassess.Forexample,wherepublicbankschoosetotackle barrierstoprivatefinancialcapacity,bycreatingtrack-recordofinvestmentsthroughtheir financing,andbyincreasingprivatebanksfamiliaritywiththetypeoftransactioninvolved,the estimationofthepotentialeffectsinadvanceorthemeasurementofeffectsinevaluationcanbe difficult. Considerationofindirecteffects,eventhoughfrequentlyanimportantobjective,isoften constrainedbythecomplexitiesoftheinteractionofdifferentfactorsleadingtoobservable outcomes,andbythetimelagbetweenthefinancingprogrammeandanobservableoutcome. Nevertheless,datagatheringandexchangeplayskeyrole.Oneexampleoflearning:CDC s secondeco-logementloanwasofferedatlessattractiverateofinterestthanthefirst,asthe firsthadbeenveryhighlydemanded.thishadanimpact:thetargetforthesecondeco-loanfor 2012was150000loans,butaround20000wererealized.Theexamplealsoillustratesthe difficultyinjudgingtheimpactofchangestofinancialoffers. Intheprogrammesthattheprojectexamined,thereweredifferentdegreesandformsof monitoringandcollectingdataontheoutcomes,withparticulardifferencesinwhetherdirect 12AnanalysisoftheperformanceoftheEIBELENAfacilityshowsthattheleverageeffectforcurrent projectsis54,i.e.morethandoubletherequiredlevelof20,potentiallyleadingtoinvestmentsofover 1.5billion.Itisestimatedthatenergysavingsfromsignedandapprovedprojectscouldreach919GWh peryear,withtotalavoidedco2emissionsreaching588,357tonnesperyear(com(2013)225final,p.6)

17 energysavingswereestimated,orverifiedafterprojectinvestments.somesamplingofactual savingsrealisedwouldprovidevaluableinformationonachievementofgoals. 12

18 Part2:MakingProgressonFinancing 5.KeyQuestionsfortheFuture Inthecourseoftheproject,ourdiscussionsgatheredexperiencesfrompublicbanksandpolicy makersthathighlightedsomekeyissuesforfuturedecisionsonfinancingofenergyefficiency, andthepolicyframeworktosupportit. Theprimeissueswere:1)Weakdemandforfinance2)Reachingsufficientscale;and3)the energyefficiencyperformanceor depth ofinvestmenttosupport.thesectionsbelowexplain theseissues. 5.1WeakDemandforFinance Levelsofdemandforenergyefficiencyfinancingarenotconstantwithin,orbetween,countries. So,theuptakeoffinanceofferedbypublicbankscannotbetakenforgranted.Achievinghigh levelsofuptakedependsonvariousfactorsincludingtheunderlyingdemandforenergy efficiencyinvestment,andtheattractivenessofthepublicbank soffercomparedtoalternatives. Incertainregionsandmarketsegments,lackofdemand,ratherthanlackofavailabilityof finance,istheprimaryissueholdingbackinvestment.somepublicbankshavefacilitiesfor energyefficiencylyingidle.twoparticularissueswhichcouldhinderuptakewerementionedin additiontothebarrierstofinancingmentionedinsection4.3: Weaknessofunderlyingdemandforenergyefficiencyinvestment Demandforfinancingisrelatedtothedemandforinvestmentinenergyefficiency,andthe potentialofthemarketonthesupplysidetodeliverenergyefficiencyproductsandservices. Evenforpublicbanks,potentialdemandtypicallymustbeofsufficientlylargescalefor programmeorproducttobeattractive,andtheprogrammeonlysuccessfulwherethe demandisrealised.often,thislevelofdemandisnotpresentgrowthofdemandisoften linkedtoadequatepolicy. Attractivenessofoffertointermediaries,comparedwithalternatives Eventhoughloanmayappearatfirstsighttobeanattractiveofferforallparties,itmay notbeattractivewhencomparedtoalternatives.lessonscanalsobelearntfromthemfb PanelPlusLoan programmedesignedtostimulateinvestmentinpanel-builtmultipleresidences.topromoteuptakebyownersandoccupiersofresidences,theloanwasoffered atfavourableinterestrate,withcapplacedonthemaximuminterestrateatwhichthe loancouldbeoffered(ofmontheuribor+3.5%)theloanwasofferedthrough intermediaries,andthecapmeantthatthemarginfortheintermediarybankswaslower thanthemarginsthattheycouldreceiveforundertakingotherfinancing.asresultthey showedrelativelylittleinterestindistributingfinanceintheprogramme. Wherethesesituationsarise,buildingupsuitableprojectstreammaybecomeoneofthekey activitiesofbankers.therearequestionsontheextenttowhichpublicbankscanuseattractive financialproductstostimulatedemandthatwouldotherwisenotmanifest.thesequestions 13

19 14 revolvearoundtheextenttowhichtheproductsandprogrammesaremarketed(andtheform bywhichtheyaremarketed)andonhowfinanciallyattractivetheproductswouldoptimallybe. Italsomeansthatbankershavetopayattentiontootherfactorsthatcanreducethe attractivenessoftheirproducts.althoughthesituationdiffersbetweencountries,weheardthat, ingeneral,thegreatertheconditionsthatattachtofinance,thelowerthedemandforit,allother thingsbeingequal.thisisforthreereasons: conditionswhichlimittheabilityofbankerstomatchtheirfinancialproducttospecific marketssituationscanhinderthevolumeoflending;particularlywheretheseconditions arenotdevelopedinconsultationwithbankerswhohavegoodknowledgeofthemarket conditions; theuseofhighlydemandingprocessrequirementsmaydecreasetheattractivenessof thefinancingtothepointwheredemanddropsaway,wheremarkethaslowdemand. Burdensomeadministrativerequirementscandissuadepotentialintermediarybanks andcustomersfromusingpublicbank sfinanceoffer.theseaddcostsincludingthe opportunitycostsoftimewhichcouldbespentonotheractivities.asenergyefficiency investmentsareoftenrelativelysmall,administrativerequirementsforintermediary bankscanbemultipliedcomparedtoinvestmentinother(largerprojectvolume)areas; thestringencyofenergy-efficiencyperformancerequirementshasbeenfoundtoweaken demand.thismaycomebecauseprojectplannersfirstdecidingonlevelsofenergy efficiencyimprovementandthenlookingforsourcesoffinancethatfitthatlevelof performance,orequallywouldhappenwhereperformancerequirementsweretoo stringentcomparedtosupply-sidecapacity,orinvestmentdesires,(e.g.insufficient expertiseincondensingboilerinstallation),orfromlimitsintheabilitytoinvestby home-owners.forexample,inhungary,buildingownerswilloftencarryoutenergy efficiencyatlowlevel,becausethisiswhattheybelievetheycanafford.later,if possible,theywouldinvestagaintoreachhigherperformancelevels. Thesefactorscancreatetrade-offsbetweendemandandachievementofsupportforpolicy goals.ifpublicbankshavetolowertheconditionsontheirloansorhighlysubsidisethemto makethemattractive,itseemslikelythatpublicpolicyinstrumentswouldbemorecost-effective atstimulatingdemand.lackofdemandsuggeststhatthepolicymakerandbankermayneedto consulttogetheronhowtoshapetheattractivenessofthefinancialoffertofuturemarket conditions,andhowotherpolicyinstrumentscansupporttheuptakeofthefinancialoffer. 5.2ReachingsufficientScale Sufficientscaleofinvestmentinenergyefficiencyispre-requisiteforstimulatingtheprivate debtfinancemarket sentryintosomesectorsofenergyefficiency(forexample,publicbuildings andresidences,smes)andcreatinglargesupply-sidecapacitytosupportfurtherexpansion. Scalereducestransactioncostsforinvestment,andallowsbankerswhoareusedtoinvestingin largevolumestobecomeinterestedinthemarket.itcouldopenthewayforsufficient

20 homogeneityinprojectinvestmentstoallowsecuritisationofdebtfinance.wherethiscanbe done,itwouldmakeinvestmentinenergyefficiencysignificantlymoreattractivetovolume investors,becausetheirinvestmentcouldbetradedonfinancialmarkets.thisprovidessource offinance,andgivestheinvestmentsliquidityfortheinitialfinancier,allowingthemtobesold on,andnewinvestmentstaken. Liquidityisessentialforprivatebankfinance:ithasbeensaidthatthepurposeofbanksisto provideliquiditytothemarket,asopposedtotyinguptheirfinanceinfixedinvestments. Aggregationofinvestments,andstandardisationofinvestmentdocuments(whichcanalready beachieved)areneededtogettoscale.energyefficiencyinvestmentsareusuallysmall,in financingterms,whichbringsthisneedforthemtobedealtwithinaggregate.itmaybepossible toaggregateenergyefficiencyinvestmentswithotherformsoflonger-terminvestmentin particularsituations:forexampleinurbaninvestmentbonds. Expectationsoffuturescalematterforpresentdecisions.Privatebankswilltendonlytoinvest inenergyefficiencywheretheycanseethattherewillbesufficientfuturedemandthattheycan formrollinginvestmentfund,withthereturnsoncurrentinvestmentsbeingre-investedinthe future.forthis,banksneedfairdegreeofcertaintythattherewillbedemandforenergy efficiencyfinanceinthefuture.sufficientlysmallpay-backperiodsarealsoneededforrolling fund:thesewouldprobablyneedtobebetween7-10years,forsuchfundtobeattractive. Therealsoneedtobeexpectationsoffuturemarketscalebecausetherearerealtransitioncosts fromresourcesinbankmovingfromanotherareaofinvestmentintoenergyefficiency investment,asbankersuseworkingtimetobecomefamiliarwiththeareaandbuildnetworks. Anissuerelatingtoscaleisthedefinitionofthescopeof energyefficientinvestment.asnew investmentsinupgradingbuildingstock,orinstallingreplacementindustrialprocessestend tobemoreenergyefficientthanwhattheyreplace,investorsneeddefinitiontodecidealready whichinvestmentsgobeyondthenormallevelofperformanceimprovement,andsobring returnsspecificallyfromtheirenergysavingscharacteristics.theanswerisspecifictodifferent marketsegments. 5.3TheEnergyEfficiencyPerformanceLevel,or Depth ofinvestment,tosupport The depth ofenergyefficiencyachievedreferstotheextentofenergysavingfroman investment,comparedtothephysicalstructuresorpracticeswhichitreplaces.forinstance,in building,itisthechangeintheuseofenergyaftertheinvestmenttookplace.itisimportant, becauseitdefineswhatdegreeofthetotalsavingpotentialcanbeachieved. Theoretically,thereiscost-optimallevelofenergyefficiencyperformance,whichis determinedbythecost-of-capital,theinvestmentcostsandtheprofileofthefuturesavingsfrom efficiency.investmentshouldtakeplaceuntilthemarginalcostofadditionalinvestmentreaches themarginalbenefitofthediscountedstreamoffutureenergysavings.thiswouldcapturethe wholeoftheeconomicenergyefficiencypotential(undercurrentmarketprices). 15

21 Inpractice,otherfactorsinfluencethelevelofinvestmenttakingplace,whichcanoftenbring investmentatenergyefficiencyperformancelevelsbelowthetheoreticalcostoptimallevel.this wouldnotbeanissue,ifitwaseasyforfutureinvestmenttolaterrealisetheremainingsavings. However,practicalitiesoftenpreventthatadditionalinvestment,asmentionedbelow.Thishas consequencesfortheachievementofpolicygoals,andsoraisesthequestionontheappropriate depth ofnewinvestmentstosupport. Twofactorsinfluencingthedecisionon depth foranyprogrammeorproductareparticularly significant: 5.3.1Lock-in The depth ofenergyefficiencychoseninaninvestmentcanbe locked-in forfuturedecades, meaningthatchoicesnowaffectfutureperformance.thisarisesfortworeasons: energyefficiencyinvestmentsoftentakeplaceatthetimeofotherinvestments(for example,buildingrenovation,orindustrialprocessupdating)becausecostsarereduced whensuchactivitiestakeplacetogether.thegapbetweensuchperiodicinvestments maylastdecades. initialinvestmentsinenergyefficiencycanexcludefurtherinvestmentsbymaking themlessfinanciallyattractive:e.g.oncespace-heatingboilerisreplacedwithslightly moreefficientboiler,itmaynotpayofftothenlaterreplacethesecondboilerwith moreefficientthird,duetotheone-offcostsofreplacement. Thispotentiallock-inmatters,becausefinancingshallowenergyefficiencyresultsinlimitstothe practicalpotentialforenergysavingsinthefuture.thismisseseconomicopportunitiesandcan endangersocial,energyandclimategoalssetforenergyefficiency.intheschematicfigure below,imaginethatthediagramstartsin2010withtheunderlying(dark)rectangle,which representsthetotalbuildingstockanditscurrentenergyuse.aseachdecadepasses,investment bringstheenergysavingsrepresentedbytheeachlightrectangleandinbothdiagramsthe totalenergysavingsbecomeprogressivelygreater.(eachdecade srectanglerepresentsthe samevolumeofenergysavinginbothdiagrams). 16

22 Starting with shallow retrofit Figure4:Comparisonof shallow and deep buildingretrofit Focus on deep retrofit KWh/m KWh/m ? m2 m2 Energy consumption Energy saved Thediagramontheleftrepresentsshallowretrofit,inwhich,toachieve2050energysaving goals,thedecadeofinvestmentsleadingupto2050hastobeundertakeninbuildingstockthat hasalreadybeenrenovated. Forinstance,lookingatbuildings,calculationssuggestthatforsensibleeconomictrajectoryto achievetheeubuildingenergysavingsgoal,theaveragefinalenergydemandforspaceheating forallbuildingswouldneedtofallfrom115to90kwh/m²aby2020andto20kwh/m²aby 2050.Thisrequiresthat2.3%ofthebuildingstockreceivescomprehensivethermalretrofiteach year.ifinitialretrofitisshallow,thenbuildingsneedtoberetrofittedmultipletimesand greateroftotalbuildingstockneedstoberetrofittedineachdecade. 13 Thishascost implications,particularlywheretheshallowretrofitdoesnotfactorinlaterretrofitting(e.g. steppedretrofit). Whetherthereislock-infromearlyinvestmentdependsonthenatureofthefirst,and successiveinvestments.itispossibletoorderprogressiveinvestmentsinwaysthatdonot reducetheattractivenessoffurtherenergyefficiencysteps,butthisrequiresknowledgeand planning,togetherwiththerightincentives IncreasingCost-of-Capital,withincreasingDepth Anincreasing depth ofenergyefficiencyfrequentlyincreasesthepay-backperiodof investment.thisincreasestheperceivedfinanceriskasinvestmentistiedupforlongerisless liquidandsoitisperceivedasriskier.atbest,itincreasesthecostoffinance,whichreduces theattractivenessoftheinvestment.beyondthat,particularlyforprivatebanks,thelongerpaybackperiodcanmaketheinvestmentsufficientlyunattractivenottobefinancedatall.(asdebt financingofenergyefficiencyinvestmentsisanunfamiliarmarket,perceivedriskisalready high,andasresultenergyefficiencyinvestmentsareseenasbebarelycommercial.) 13Ecofys(2012).RenovationtracksforEuropeupto2050:BuildingrenovationinEuropewhatarethe choices?commissionedbyeurima. 17

23 18 Asresult,deepretrofitthathaspaybackperiodsoflongerthan15yearsisnotattractiveto privatefinance.investmentswithpaybackperiodsoflessthan10years(inbuildingretrofit)are saidtobeontheedgeofbeingcommercial. Where deep energyefficiencyreliesoninnovativetechnologiesthatarerelativelynewtothe market,andsoseemunproven,thesewillincreasetheperceptionofriskbythecredit committeeswithinbanks,andprobablyleadtotherefusaloftheseenergyefficiency investments. 6.BridgingPolicyandBankingPerspectives Thenextfewyearswillseeseveralchangesforenergyefficiencyfinancing:forexample,each MemberStatewillproduceRoadmapdescribingkeyfeaturesoflong-termstrategyfor improvingtheenergyefficiencyperformanceofitsexistingbuildingstockastheeuenergy EfficiencyDirectivecomplementstheEnergyPerformanceinBuildingsDirective;discussionsin thecontextofthenexteumultilateralfinancialframeworkhaveopenedthepotentialforthe creationofnewformsoffinancialinstrumentsforenergyefficiency. Thesechangesraisepracticalissues,wheredecisionmakerswillbedecidingafreshthe questions: Whichprojectsshouldpublicbanksfinance? How,andtowhatextent,shouldpublicmoneysupportfinancingofenergyefficiency? Theanswerstothesequestionsareonlyfoundbyansweringseveralunderlyingquestions.For example,article140oftheeufinancialregulation 14 setsouttheconditionsunderwhichnew EUfinancialinstrumentwouldbejustified,coveringquestionsontheextenttowhichthe financialinstrumentisadditionalandaddressesmarketfailuresholdingbackinvestment. Inthecourseoftheproject,wefoundthatoutcomesareinfluencesbythewayinwhichenergy efficiencygoalsareconceptualisedbytheactorsinvolved.theseperspectivesinfluencethe objectivesofpublicbanks,anddecisionsonprogrammeandproductdesign.differencesin perspectivebetween(forinstance)policymakersandbankerscanweakentheachievementof thegoalsofeithergroup.wealsofoundindicationsofdifferencesinperspectivewithinthose twogroups(forexamplebetweenfinancialpolicymakersandclimatepolicyofficials). Thesedifferencesinperspectivearerelevanttohowmuchpublicmoneytoallocatetoenergy efficiencyinvestment,andhowitisspent,towardswhichgoal. Exchangeofexperiencebetweenpublicbanksandpolicymakersisoneroutetocommunicating theevidencethatwillprovidetheunderlyinganswersonwhichdecisionsonpolicyand programmedesigncouldbebased.thissectiondiscussestheissuesandemergingquestions infourareasraisedbytheproject: 14Regulation(EU,Euratom)No966/2012

24 therelativeeconomicbenefitsofenergyefficiencyinvestment; theneteconomicvaluefrom jumpinghurdles togreaterinvestment; theconceptualisationoffeasibilityoffinancinggoals;and thebenefitsoffocussingonmarketsegments. 6.1TheRelativeEconomicBenefitsfromEnergyEfficiency Energyefficiencytendstobringparticularlystrongeconomicbenefitsfrominvestment,when comparedtootherinvestments,as: thedirectreturnoninvestmentcanbehigh(forinstance,oftensignificantenergy savingscanbeachievedbychangeswithverylowcost); energysavedusuallyimpliesreducingthetransferofwealthoutsidetheeuaspayments forfuelimportsandinsteadseesthere-investmentofthatmoneyintheeu; energyefficiencyinvestmentcreatesjobswhichalsoreduceswelfarepayments. Yet,thefullextentoftheeconomicbenefitsofenergyefficiencyinvestmentshavenotalways beenappreciatedbydecisionmakersallocatingresourceswithinfinanceministriesandsome publicbanks.thisimpactsontheallocationofresources,whetherpublicfundsorbank s financialorhumanresources,toenergyefficiency,withcertainamountofinertiaalready mitigatingagainsttransferofresourcestothemostproductiveareas. Existingexamplesofestimatesofeconomicbenefitsdemonstratethatitispossibletomakeclear andconvincingcasesontherelativeeconomicstrength: KfW(2010)calculatedthatforeacheuroinvestedbyitsenergyefficiencyprogrammes in2010,thegermanfederalchancellerywouldreceivebetween 1.8and 2.8in taxationontheinducedinvestments.whentheeffectofincreasedemploymentistaken intoaccount,additionalnetbenefitstothechancelleryofover 4pereurointhe programmescouldberealised,forexamplethroughreductionofunemployment welfarepaymentsby 1.8bnin E3G(2012)describethesetofmacro-economicbenefitsofenergyefficiency. 16 CambridgeEconometricsandVerco(2012)showthatfortheUK,anenergyefficiency programmeismoreeffectivewaytostimulatetheeconomycomparedtolikely alternativesof:cuttingvat;reducingfuelduty;orinvestingininfrastructureprojects likeroads. 4bn/yearprogrammeinbuildingthermo-retrofitisestimatedtoboost grossdomesticproduct(gdp)by0.20percent Kuckshinrichs,Kronenburg,Hansen(2011).WirkungenderFörderprogrammeimBereich EnergieeffizientesBauenundSanieren derkfwauföffentlichehaushalte,forschungszentrumjülich,ste ResearchReport,imAuftragvonKfWBankengruppe. 16E3G(2012).TheMacroeconomicBenefitsofEnergyEfficiency,April CambridgeEconometricsandVerco(2012).Jobs,growthandwarmerhomes:EvaluatingtheEconomic StimulusofInvestinginEnergyEfficiencyMeasuresinFuelPoorHomes.CommissionedbyConsumer Focus. 19

25 AnIDDRI/DIWestimationofthebenefitsofgreeninvestmentsinEuropeanstimulus packagepointedtonetgainfromenergyfuelcostreductionsof 55bnto2050from packageofinvestmentincludingenergyefficiency. 18 Theeconomicbenefitsofenergyefficiencyinvestmentvarybetweencountries.Incountries currentlysufferinghighunemployment,ascurrentlyinspain,investmentsinenergyefficiency canhavegreatereconomicgain,byreducingunemploymentinsectorsofthelabourmarket thatareparticularlyslack. PotentialforFutureExchange1: DiscussionandFormsofDisseminationofEconomicBenefitsofEnergyEfficiency Theprovisionofmoreinformationonthefulleconomicbenefitsofenergyefficiencycouldhelp intheallocationofscarcepublicinvestmentresourcestowardsenergyefficiencyinfutureyears, includingdiscussionsontheuseofeustructuralandinvestmentfunds. Thisinformationcouldprovideadditionalrigourontheextenttowhichthereisunderinvestmentinenergyefficiencyonceallcostshavebeentakenintoaccount;andassessbenefits widelyincludingtheimpactsonemployment,stimulusfromreductioninenergyimport payments,andsoimpactsonnetgovernmentpayments.itcouldparticularlyidentifywhich markets(includingwhichcountries)wouldstandtorealisethegreatestbenefit,givencurrent employmentmarket,fiscalandinvestmentconditions.someresearchisbeingdonetoprovide decisionmakerswithestimatesinsomeofthesemarkets,e.g.spain 6.2ThenetEconomicValuefrom jumpinghurdles togreaterinvestment Energyefficiencyinvestmentsusuallyrequiresomeupfrontcosts,todeliverfuturereturns.The sameappearstobetruelookingatpublicinvestmentinovercominghurdlestoenergyefficiency financing:investmentintheshorttermcanfreefuturereturns,byremovingbarrierstoprivate financing. So,publicinvestmentnowhastwovaluableformsofreturn:theenergysavings(andindirect effectsfromtheinvestments)itselfandthereductionofbarriersthatfreeupfutureprivate finance.thereductionofbarriershassignificanteconomicvalue,becauseitfacilitatesfuture investmentswithgoodreturnsthatotherwisewouldnottakeplace. Duetothenatureofthesebarriers,theinvestmentmarketforenergyefficiencyneedstobeseen asnew, fledgling financialmarket,withdistinctproblemsandtheneedforpublicsupportto overcomecurrentconstraints. Thisisnotalwaysthewaythatthemarketisperceivedbypolicymakers,orfinanceministries. Suchdecisionmakerscanseethefinancemarketasefficient,andsothelowleveloffinance 18Spencer,Bernoth,Guerin,Chancel,Neuhoff(2011).GreenInvestmentsinEuropeanGrowthPackage (IDDRI/DIWWorkingPaper,June2011) 20

26 goingintoenergyefficiencyinvestmentasanindicatoroflackofcost-effectiveinvestment opportunitiesinthatareaforexample,becausetransactioncostsorotherunobservedcosts aretoohigh,andcanceloutfuturesavings.somestudiesre-enforceaspectsofthisview, suggestingthatthegapbetweeninvestmentlevelsandtrulyprofitableinvestmentlevelsare over-estimated. 19 ItmaybehelpfultoseesomeofthesebarrierslistedinSection4.3,includingtheperceived longpay-backperiods,resultingilliquidity,andtheneedforscaleas thresholds,or hurdles that,onceovercome,freeupfutureinvestmentreturns.theseareeconomicblockswhich preventthefinancialmarketfromallocatingcapitalefficiently.thisperceptionallowsclearer roleforpolicyinhelpingleapthathurdleinwaysthatarenotsoexpensivethattheymakethe wholepackageofintervention/investmentandenergysavingseconomicallyunattractive. Theneedforsufficientscaleisgoodexample:itisunlikelytobeovercomewithoutpolicy intervention,butoncehurdled,itopensupinvestments.thereareatleastotherbarriersthat canbeseenas hurdles,andwhichcomeoutofthenatureoftheinvestmentdecisionmaking processwithinbanks,andparticularlythewayinwhichtheydealwithuncertainty: Theunfamiliarityofenergyefficiencyinvestmentsandthefrequentlylowcollateral valueofinvestmentscreateanexcessivelyhighperceptionofrisk,incomparisontothe availableevidenceofthelevelsofrisk(ortootherinvestments). 20 Theattractivenessofenergyefficiencybeingfurtherreducedbyitsapparentlydifferent natureitproducessavings,insteadofproducts.additionally,thesesavingsarein energy,sosubjecttorisksofpricefluctuation(ratherlikethepriceofproductsin market). Theneedforexpertise,aswellasfamiliaritytobebuiltupwithinprivatebanks,around energyefficiencyinvestment.currently,manybankersareunawareoftheactual,low riskprofileofenergyefficiency. Thiskindofassessmentofthebarrierscouldalsohelpinthedesignandapprovalofnew financialproductsforenergyefficiencyfinancing,ofthetypebeingenvisagedbytheeib,andby theeuropeancommissioninthefinancialregulationfor supportingtheforthcomingeu Budget,andsotheallocationofEUStructuralandInvestmentFunds.Italsoimpliesthatpublic fundingthatremovesbarrierscanbereduced,oncethebarriersarehurdled. Therearevariouswaysinwhichprogrammesandproductscanbedesignedinwayswhichmore effectivelyovercomethesebarriers,whilstalsodeliveringthesavingsfromenergyefficiency. 19E.g.AllcottandGreenstone(2012).IsThereanEnergyEfficiencyGapNationalBureauofEconomic Research,WorkingPaper Collateralvalueislow,asitisimpracticaltotake-backonlytheenergyefficiencyaspectsofinvestments (e.g.windowsinhouse,ineventofdefault),andsofinancingisusuallyunsecured,andtreatedasan unsecuredloanwithcorrespondinglyhighinterestratese.g.inthenetherlands,typicalofferforan unsecuredloantoconsumerscarriesrateofinterestbetween8-14%pa. 21Regulation(EU,Euratom)No966/

27 Forinstance,oneapproachtohurdlingthisperceivedrisk,andperhapslongerpay-backperiods wouldbefinancialproductinwhichpublicmoneyisinvestedinthefirsttrancheofrisk perhapsasequityinvehiclethatdebtinvestorscouldthenenter,withlowerriskexposure. Thereareexamplesofwaysinwhichfinancialactivitiesreduceothermarkethurdles.The settingofcertainrequirementsbypublicbanksintheirprogrammescaninfluencethemarketas towhatisseenasanappropriatelevelofenergyefficiencyperformance.thiscouldinfluencethe ambitionlevelofprojectscomingforwardforfinance,andtheexpectationsofmarketactorson whattheyshoulddemandfrom,orsupplyto,themarket.ebrd slistingofproductsasavailable fortheircreditincertaincountrieshasthiskindofsealofapproval.kfw sdomesticenergy efficiencybuildingstandardshavebecomereferencepointsforpropertymarketactivity. Wefoundthatcurrently,thereislessevaluationavailableabouttheeffectivenessofpublicbank activityinovercominghurdlestomarketactivity,thanthereisontheenergysaving(and indirecteconomicimpactsofthesaving)frominvestments.thisscarcitymayweakenthe persuasivenessofthecaseforuseofpublicmoneytosupporttacklingthesebarriers,even wheredoingsoisoneofthemaingoalsofpublicbankenergyefficiencyprogrammes. PotentialforFutureExchange2: EstimationoftheEconomicBenefitsofPublicSupportforovercominginitialhurdlesinthe EnergyEfficiencyFinanceMarket keypartofthediscussionontheeconomicsofpublicsupportofproductsorfinancial instrumentsforenergyefficiencyfinancingistheeconomicgainfromthoseinstrumentsovercomingmarketbarriers,andsofreeingupfutureinvestmentstreams,inadditiontotheirown returns. Thisisrelevanttodiscussionsoftheadditionalityofpublicfundallocation,inparticularthe extenttowhichisdoesnotsubstituteforothersourcesoffinanceforopportunitiesthatare alreadyprofitable.itisinformationthatisneededtodecidehowmuchpublicfundingsupport toallocatetomakepublicbankproductsmoreattractiveforexample,howmuchofgrant elementwouldbeeffectivetosupportdemandforloans. Therearetwopotentialmetricsforthevalueofthepublicfundingallocated:thevalueofthe futureinvestmentstreamsthatwouldbefreed-upbyovercomingthehurdle;andthecostofthe cheapestalternativewaytoovercomethathurdle(ifanyalternativesexist). Neitherofthesemaybeeasytoestimatewithcertainty.Exchangeandreviewofpastexperience inovercomingorreducinghurdlesincertainmarketsmayprovidesomeguidance,when analysedwithinframeworkthatidentifieswhichhurdlesarebeingreduced. Thisinformation,inturn,canprovideguidanceonthelevelofinducementneededforprivate financetoenterintoparticular(unfamiliar)marketforenergyefficiency,giventheavailability ofalternatives. 22

28 Forexample,aninvestmentvehicleinwhichpublicequityinvestmentwouldtakethefirst trancheofrisk,toreducetheperceptionandrealityofriskforprivateinvestorsinthevehicle thelevelofpublicequityinvestmentwouldneedtobeintheareaof30-40%ofthetotal investmentvolumestomaketheinvestmentattractive.discussionoftheevidencebaseofthese kindsofestimatescouldfacilitateagreedlevelsofpubliccontribution. Whencomparisonoftheleast-costalternativetoovercominghurdlesisconsidered,thereare necessaryandinterestingquestionsaroundthetruesourceofthe hurdle andofthedifferent cost-effectivewaysofremovingthistypeofbarrier.forexample,oneofthekeyquestionsisthe issueofwhatwouldbenecessarytobringaboutchangesinattitudesandperceptionswithin banksonenergyefficiencylending.answerscouldbebasedonexchangesofexperienceabout thedecisionmakingprocesseswithinbanks,andhowdifferentfactorsimpactonthose. Suchanalysismayalsoprovidesomepointerstohowlongpublicsupportforenergyefficiency investmentinmarketwouldneedtolast,beforethebarriersareovercome.sowhetheras seemsunlikelythepublicinvestmentrepresentedbythelightercolouredlowersegmentin Figurewouldcontinueindefinitely,orwhenitcoulddecrease,afterprivateinvestmentwas catalysedandwasthenabletofilltheinvestmentgap. Figure5:Whatprofilewillpublicsupportforenergyefficiencyinvestmenttake? 6.3BoundedTrajectories Investmentinenergyefficiencycannotimmediatelyberaisedtogiventargetlevel,duetothe timetakentoovercomehurdlesandbuildmarketcapacityanddemand.thesecanbe progressivelyreducedovertime.forexample,banksunfamiliarwithenergyefficiencywould builduptheirexpertise,overtime,astheybecamemorefamiliar,ratherthanmakesudden shiftintheirstrategiesintorelativelyuntestedarea. Anotherreasonfortheprogressivenatureofchangeisthatexpectationsofmarketgrowthplay animportantroleindecisionstobuildcapacityinfinanceandsuppliersofenergy-efficient goodsandservices(orinthecreationofescoswhomightplayroleinaggregatingdemand.) Expectationsarenotinstantlychangedbypolicysettingpolicytargetisnotinitselfsufficient 23

29 tocreatestrongexpectationsduetopastpoorperformanceintheachievementofpolicytargets (invariouspolicyareas).somarketexpectationswillmoveprogressively. Understandingthepotentialratesofchange,ortheboundariestothem,iskeypieceof informationforsettingpolicygoalsandcreatingconstructivediscussiononthefeasibilityof policygoalsbetweenpolicymakersandpublicbankersaroundenergyefficiency.lookingatthe potentialgrowthofenergyefficiencymarketsastrajectorymaygiveanadditionalcommon perspective,evenwherethereisuncertaintyaboutthepotentialfuturetrajectories.figure belowisanillustrationofsuchtrajectory.itshowsthepotentialachievementofinvestment goalsintermsofprogressiveinvestmentmarketexpansion,givenconstraints.theinvestment potentialinenergyefficiencyissetofpossibletrajectories,startingfromcurrent2013 investmentlevels. Figure6:BoundedInvestmentTrajectories Maximum Potential Trajectory Annual investment volume ( ) or Annual Energy Saving (MJ) 2013 P1 P2 P4 P3 Minimum Expected Trajectory for Private Finance Maximum Public Bank Finance Trajectory Time InFigure6: Thenumberedpointsrepresentpotentialpolicygoals.Themaximumrateofprogress currentlyeconomicallyfeasibleundertheexistingconditionsisshownbythesolidgrey linerunningthroughp2andp3.p1showsthatveryboldpolicytargetwhichignores theconstraintsisnotfeasible.(althoughachievementofanygoalistheoreticallyfeasible givenlimitlesspublicsupport,atsomepointthisbecomesuneconomic). ThedottedlineinFigurerunningthroughP4indicatestrajectorywithlessprogress inthenear-future.asresult,fromthetimeofp2onwards,theconstraintsstillneedto berolledback,andcannotbedoneatfasterratethanthedottedline:ifp2isnot reached,achievingp3wouldalsonotbefeasible.so,ifp3representedanambitious 2050energyefficiencytarget,itwouldonlybereachableifthe2020(P2)targetwere reached. Thereisalsominimumexpectedtrajectoryshown,whichactsasboundaryconstraint toinvestment.thetrajectoryimpliesthatmuchfuturefinancingcomesfromprivate 24

30 sources,ratherthanfrompublicbanks.forprivatefinancetoenterthemarket,therehas tobeanexpectationoffutureexpansion,sothatearlymoversinthemarketcanseethat theirentrepreneurshipwillleadtobiggergainslater,onscalewhichpaysback.for example,onshorttimescale,weheardthatforbondmarketforenergyefficiency investmenttotakeoffintheeu,themarketmightneedtogrowto mwithin years. Thedashedlineindicatesthattheexpectedlevelofpublicbanksfuturefinancingwould notrealisepolicygoalsbyitself.publicbankshavekeyfacilitative,orpump-priming role,forprivatefinanceratherthanbeingthemaindeliverymechanism. Figureillustratestrajectoriesthataredefinedbywhicheverconstraintwhetherfromfinance forenergyefficiencyinvestment,demandorsupply-sidecapacityremainsmostsignificant.in practice,eachoftheseareasneedstobetackledsimultaneouslyandthisre-enforcesthe benefitsofco-operationbetweenfinanceandpolicy. PotentialforFutureExchange3: EstimationofFeasibleandAttractivefutureInvestmenttrajectoriesandthecoordinationofpolicyandfinancialofferstoachievethem. Informationonthepotentialimpactofpublicsupport,andofdifferentdesignsoffinancial productorprogrammescanbepresentedindifferentways.theirinfluenceontrajectoriesis oneway. Consideringtheshapeofpotentialtrajectoriesmattersforsettingpolicygoals,andcouldhelp EUMemberStatesrefinetheirlong-termroadmapsforrenovatingbuildingstock.Someanalysis isalreadyavailablethatcanhelpinformthinkingaboutpotentialtrajectories. 22 Suchconceptualisationswouldneedtobuildondiscussionofthepotentialstoroll-backhurdles toinvestmentandtheeffectivenessofdifferentpolicies,programmesandfinancialproducts. Theycould,atbest,providepicturesofhowpoliciesandprogrammescouldworktogetherin particularmarkets,comparedtoalternatives,andsoprovidestimulusfordiscussionbetween policymakersandpublicbankers,whoseactionshaveprofoundimplicationsforthesuccessof eachothers agenda.forexample,theroleofminimumperformancelevelsforexistingbuildings haslargeeffectonfinancingoffers,withthedifferencebetweenfranceandgermanyinthis respectbeingillustrative. Discussionoftheshapeoftrajectoriesbringsupquestionsaroundhowtransferableevidenceof roll-backofconstraintsinonemarketwouldbetoothermarkets.itwouldalsoraiseissueson theformoffinancialinstrumentsthatwerebestsuitedtoremovecertainfinancialmarket barriers. 22E.g.BPIE(2013).GuidetoDevelopingStrategiesforBuildingEnergyRenovation.February

31 26 6.4UncertainBenefitsfromfocussingonMarketSegments Marketsforenergyefficiencydifferbetweenregions,legislativeregimes,buildingtypes, industrytypesandothermarketconditions.indeed,itisprobablyunhelpfultothinkofmarket forenergyefficiencyfinancingintheeu,becausethesemarketconditionsvarysosignificantly. Appropriatefinancialoffers,andpolicyinstruments,necessarilydifferbetweenthesemarkets. Therearesomesignificantsourcesofinformationavailableonthedifferencesbetweenmarket segments:forexampleonbuildings,thebuildingsperformanceinstituteeuropehavecompiled databaseofthebuildingstockintheeu,gatheringtheknowninformationonthemost importantcharacteristics,forexampleownershiptype 23 Thereisoneadvantagefromthesedifferences.Thediversityofdifferentpotentialinvestments inenergyefficiencyintheeucanallowbankstotargettheiractivitiesonthemarketsegments whichmosteasilydelivertheirobjectivesattheappropriatescale. Forinstance,usinghypotheticalexample,investmentsintheFrenchsocialhousingsector, whererelativelysmallnumberofsociallandlordsregularlyrenovateportfoliosofsimilarly constructedhousing,significantlyreducingtransactioncosts,couldoffersufficientscaletobuild uptrack-recordofinvestmentthatinterestprivatefinanciers.thiscouldmorereadilyassistin over-comingcapacityconstraintsinthefinancialmarket,thaninvestmentsintoothersectors. Wherebutonlywheretherewouldbetransferoflearning,andcapacitybuilding,fromone marketsegmenttoanother,thisapproachmightprogressivelyrollbackbarriers.thiscouldbe thecase,forinstance,whereprivatebankers,orsupply-sideengineers,whodevelopedskillsin energyefficiencyinthesocialhousingsector,couldthenlaterexpandtheirexpertiseintoother buildingtypes. Differentsegmentsofthemarketofferbetterorworseopportunitiesforovercomingparticular constraints.forexample,insomeregionsoftheeue.g.germany,ordenmarktechnical capacityonthesupply-sideishigh,allowingbanksandpolicymakerstofocusontheother constraints.whilst,inhungary,themajorityofresidentialhousingisprivatelyowned,with relativelysmallmarketsegmentownedbypublicauthorities,andthisraisesthecostsofputting togetherresidentialthermo-retrofitsonlargescale. Often,thefinanceandsupplysidesegmentsof deep or shallow energyefficiencycouldbeseen asquitedifferentmarketsegments,involvingdifferentfinancialprofilesandtechnologies.so, therecanbechoicestobemadeoverwheretoinvest,whenresourcesarescarce.currently, someprogrammesaimtolendtoboth deep and shallow segmentsofthemarket(and everythinginbetween)forexamplebykfw. 24 whoprovidevaryinglevelsofsupport,to increasetheattractivenessof deeper investmentinbuildingretrofit. 23BPIE(2012).Europe sbuildingsunderthemicroscope:country-by-countryreviewoftheenergy performanceofbuildings.isbn: Neuhoff,K.,Amecke,H.,Novikova,A.,Stelmakh,K.(2011).ThermalEfficiencyRetrofitofResidential Buildings:TheGermanExperience.ClimatePolicyInitiative.

32 Therearealsopoliticalreasonsforfocussingonparticularsegments:areaswherethebenefits areperceivedtobehigher,andsomanygainmorepolicysupport.tacklingenergypoverty, throughtherenovationofsocialhousingisoneofthoseareas,wheresocialbenefitsarehighand reductionofenergywastageforlower-incomegroupswouldallowfuturereductionsinenergy subsidy/increasedenergytaxationthatwouldimprovenetpublicrevenues. Theissueoffocussinginvestmentonlybecomesmorerelevantwherepotentiallendingvolumes arelowerthanthemarketdemandforfinance. PotentialforFutureExchange4: TheMeritsofCross-borderAggregationofInvestmentsinspecificMarketSegments Aggregationofinvestmentswithsufficienthomogeneityisseenaskeyroutetostimulating privatefinance.wheretherearepotentialsforsimilarinvestmentsinthesamemarketsegment acrosstheeu(forexample,inparticularbuildingtype,wheresimilarpolicyconditionsexist), theremaybebenefitinpublicbanksacrosstheeuconsideringinvestmentincomparable marketsegments,sothateithertheinvestments,orthelearningfromsuchprogrammes,could beaggregatedacrosseuboundaries. Assomepublicbanksfrequentlycometogethertoexchangeinformationwitheachotheraround theirexperienceswithenergyefficiencyinvestments,theissueoffeasibilityofaggregationof similarinvestmentsacrosstheiractivitiesmightbeofinterest,lookingatthekeyfactors affectinghomogeneityofinvestments. Thisissuealsorequiresdiscussionofnationalexperienceofthemeansbywhichhurdleswithin thesupplyoffinanceandsupplyofenergyefficiencyservicesandequipmentarerolledback, andtheextenttowhichgeographicalmarketsineuropeforfinancingenergyefficiencyare connected,sothatexperiencecouldtransfer. 7.WaysForward Thereareseveralwaysinwhichpolicy-makersandbankerscanexchangeinformationtoreach betterjointunderstanding,inparticulararoundtheissuesidentifiedintheboxesabove. TheresponsebyparticipantstotheJanuaryworkshopheldaspartofthisprojectindicatedthat therewouldbevaluableroleforeuropeanforumthatbringstogetherbankersandpolicy makerstoexchangeexperienceandperspectivesontheconnectionsbetweenpublicbank productsandpolicygoalsandinstrumentsforenergyefficiency.thisforumcouldserveto resolveanydifferencesbetweenperspectivesandexchangeonthekeyissuesthathavebeen identifiedintheboxesabove. Futureexchangecouldtakeplaceintheformworkshopsthatbroughttogetherbankers, financiers,expertsandpolicymakers.eachfutureworkshopcouldinvestigateoneormoreof themostrelevanttopicsforparticipants,stimulatedbysomepreparedanalysisonthetopic. 27

33 Thisprojectreportisbeingsenttoallthepartieswhoco-operatedonthecurrentproject,and otherinterestedorganisations.inthecourseoftheproject,weestablishednetworkof interestedindividualsandexpertorganisations,whocouldformthebasisforfurtherexchange ontheissuesraised. DIWanditsprojectpartnersareinterestedonbuildingonthisproject.Weinviteyoutojoinus intakingtheexchangeofexperienceinthisareaforward,andaskyoutoletusknowwhereyour particularinterestlies,eitherwithinthetopicsinthisreport,oronsomeofthemanyadditional issuesinvolvedinthisarea. 28

34 Annex:CaseStudiesofSelectedProgrammes Caissedesdépôtsetconsignations(CDC) PreparedbyIDDRI 1. Programmes TheCaissedesDépôtsetConsignations(CDC)ispublicinstitutionservingthegeneralinterest andtheeconomicdevelopmentoffrance.throughitsmanysubsidiariesandsharesasan institutionalinvestor,thecdcisinvolvedinmanyeconomicsectors(infrastructure,realestate, transport,innovation,climateetc.). TheCDChasnotbeendirectlyinvolvedintoenergyefficiencyfinancinguntilrecently,thoughits activitiesinfinancingbuildingconstructionandgeneralrefurbishmentswithregionalandlocal authoritiesarewellestablished. AftertheFrenchenvironmentalsummit2007(Grenelledel Environnement),theCDCwas grantednewmandatetofinancethermalretrofitsinthesocialhousingsectorthrough preferentialloans.thenewmechanism Eco-prêtlogementsocial wasofficiallylaunched throughconventionbetweenthefrenchstateandthecdcin2009,coveringtheperiod withtotalvolumeof1.2bneuros.itwasrecentlyextendeduntil2020. Theoriginalityofthismechanismreliesonthefactthatthefinancingresourceoriginatesfrom thesavingsaccumulatedonregulated(andtax-free)privatesavingaccounts,withtotal amountofover220billioneuros,ofwhich50%aremanagedbythecdcandtransformedinto preferentiallong-termloansforprojectsofpublicinterest. Throughtheirlowinterestrates,thesesavingaccountsprovideresourceatrelativelylow cost(currently2.85%). 25 Sincethepreferentialloansforthermalretrofitsaredistributedatan interestratebelowthecostoftheresource(1.9%to2.35%until2011,2.25%to2.50% currently),thedifferencehasbeencoveredbycdc sownresourcesandprofitmarginsobtained fromotherinvestingactivities. 26 Theinterestratewasraisedforthesecondperiodofthe Eco-pretlogementsocial (to2.25%- 2.50%)inresponsetoverystrongdemandfortheperiod Energyefficiencyrelatedpolicyobjectives TheprogramsupportstheFrenchpoliciesderivedfromtheEU2020climateandenergytargets andassuch,isexplicitlymentionedinthefrenchnationalactionplanforenergyefficiency 25Theremunerationofthesavingaccountiscurrentlyfixedat2.25%,whereastheCDCpaystheresource including0,60%commissioningfeeforthecollectinglocalbanks. 26TheindirectsubsidycoveredbytheCDCandtheSavingfundsdepartmentamountto170millioneuros fortheperiod2009to

35 (2011).Furthermore,itsobjectiveistohelpachievingtheambitioustargetsdefinedforenergy efficiencyinthebuildingsectorduringtheenvironmentalsummitof2007,inparticular: reducingtheoverallenergyconsumptionintheexistingbuildingstockby38%until2020 achievingtotalof400000deepthermalretrofitsperyearby2013 realizedeepthermalretrofitsinthe800000lessefficientsocialhousingsuntil2020in ordertoreduceghgemissionsandcombatenergypoverty TheCDCisdirectlymanagingtheloanprogramandinvolvementfromlocalbanksremains limited,thoughtheymightofcoursebeinvolvedthroughcomplementarylending. Table1:RelativeimportanceofCDC sobjectivesaroundenergyefficiency Importance Verylow Low Medium High Veryhigh Outcomesforenergy performanceof projects/depthof savings/project EU energyand climate targets Achievingenergy efficiencyobjectives indirectly(e.g.building financialexpertise, supplymarket capacity) Promotingtake-upof the financing/leveraging funds 30 Positive impacton supplyside marketand local expertise CDClendsat verylow rates (between1.9 to2.5%, depending onduration) 3. Selectionprocess TheCDCsetsbothfinancingrequirementsforthefinalbeneficiaries(socialhousing organisationsandlocalauthorities)andenergyefficiencyrequirements,basedontheterms specifiedintheconventionbetweenthefrenchstateandthecdc. a. Financialcriteria/model Eligibility CDCassessestherisk-adjustedreturnoncapitalofprovidingfinancingtothefinalbeneficiaries. Thefinancialcriteriaareequivalenttothoseusedforotherloanprogramsforconstructionand retrofittingingeneral. Selection/Financing Thefinancialassessmentmodeltakesintoaccounttwodimensions:financialviabilityofthe project(balancebetweenincomesthroughrents,currentexpensesandinvestments)andofthe operatorresponsiblefortheproject.

36 b. Energyefficiencycriteriamodel Eligibility Retrofitoperationshavetorealizeminimumenergyperformance: fordwellingswithaninitialconsumptionexceeding230kwh pe/m².year(corresponding toenergyperformanceclasse,andg),theretrofitmustimperativelyachievefinal performancelevelinferiorto150kwh pe/m².year(valueweightedbyclimatezoneand altitude). fordwellingswithaninitialconsumptionbetween151and230kwh pe/m².year(energy performancelevel D ),eligibilityisconditionedbyachievingminimumlevelofenergy savings(atleast85kwh pe/m².year),orbyachievinganenergyperformancebetterthan 80kWh pe/m².year(weightedbyclimatezoneandaltitude). 27 Themaximumamountofthepreferentialloanperdwellingiscalculatedaccordingtoprinciple ofprogressivity,conditionedbytheprojectedlevelofenergysavings(kwh/m²): Energy < savings Loanper 9k 10k 11k 12k 13k 13k 13k 14k 14k 15k 15k 16k dwelling Selection/Financing Projectscomplyingwithboththefinancialandenergyefficiencycriteriadonotundergo additionalselectionprocesses.however,thetotalamountofprojectshasbeenlimitedduring thefirstphaseduetotheavailabilityofresources(whichexpiredasearlyasmay2011before beingperpetuatedwithoutresourceceilinguntil2020). 4. Assessmentofoutcomes DepthofdirectEEoutcomesfromprojects Theenergyefficiencycriteriaarecheckedinadvanceofinvestmentthroughquantitative analysisbyexternalexperts,whohavetocertifythattheplannedworkswillachievethe projectedenergysavings.however,technicalassessmentsareonlyundertakenex-post(after realizationoftheproject)ifthebuildingwantstoobtainanenergyperformancelabel,inwhich caseanadditional000eurosofmaximumloanamountperdwellingaregranted.otherwise, thereisnoexpostanalysisoftheachievedenergyperformance. Buildingmarketcapacity SincetheCaissedesDépôtsdirectlymanagestheloanprogramwiththefinalbeneficiaries,the programsimpactonbuildingmarketcapacityinthefinancialsectorcanbeassessedasrather low.however,becauseofitssize,theprogrammighthaveanimpactonthestructurationofthe supplychaininthebuildingsectoritself. 2780kWh/m²istherequiredleveltoobtaintheenergyperformancelabel lowenergyconsumption building infrance. 31

37 Financialattractiveness Theloanprogramisveryattractiveforsocialhousingoperatorssinceloandistributionfunctions accordingtostreamlinedandratherfastprocess.italsocombineslowinterestratesandlong paybackperiods(between15and25years).forthefirstperiod,theinitialenvelopeof1.2bn euroswasconsumedinearly2011whereasthisamountwasplannedtolastforthewhole period inresponse,theinterestratewasraisedforthesecondperiod.thismaybe factorinmarkedlylowerdemandfortheloanfrom2011. Table2:CDC srankingofoutcomes Importance Verylow Low Medium High Veryhigh Outcomesfor energy performanceof projects/depth ofsavings/ project Achievingenergy efficiency objectives indirectly(e.g. buildingfinancial expertise,supply marketcapacity) Promotingtakeupofthe financing/levera gingfunds Noexternal financing requirement intheory(but alwaysin practice) 32 Min.energy savingsof20-30%;progressivityof loanamount accordingto projected energysavings Noimpacton financial sector; Impacton structureof supplysidein thebuilding market 5. Expertcommentsontheimpactoftheselectionprocessonachievementonoutcomes Byitsfinancialmodel,theFrencheco-loanprogramforsocialhousingsisquiteuniqueinthe Europeanlandscape.Thecentralizationofthesavingaccountresourcescanbeperceivedas ratherinnovativeapproach,providingconsiderableresourcesatmanageablecost. Depthofefficiency inrelationtogoals Theenergyefficiencyrequirementsareanimportantpartoftheselectionprocess.However, interviewsindicatethattherequiredenergyperformancelevelisnothighenoughregardingthe politicalobjectives(38%reductionofenergyconsumptioninthebuildingstock)inparticular andareonlyslightlyhigherthanthecriteriaenforcedthroughthermalregulation.inorderto tapthefullpotentialforenergysavings,thesecriteriashouldbeincreased,whichmightinturn raisenewissuesregardingtheeconomicandtechnicalfeasibilityofprojects,since(technical) competencebuildingremainsinsufficient.ontheotherhand,thepreferentialloansintegrate largerpanelofavailableincentivesforthermalretrofitsinthesocialhousingsector,including

38 fundingthroughtheenergysavingsobligationscheme,regionalgrantsandadditionalloansfor generalhousingimprovements. Issuesonmeetingtargets Sincetheprogramhasbeenperpetuatedwithoutmaximumlimitforthetotalvolumeof credits,theavailabilityoffundingforthermalretrofitsinsocialhousingsshouldnotbeanissue forthenextyears.however,itstillappearsuncertainthattheprogramwillbesufficientto achievetheobjectiveofretrofittingthe800000mostenergyintensivesocialhousingsuntil 2020.Thisisparticularlyproblem,giventheloweruptakeinthesecondperiodofloan. Verification Regardingtheevaluationoftheimpactonenergysavings,intervieweeswerewellawareofthe lackofexpostverificationandassessments.processhasbeeninitiatedwiththeunionfor SocialHousingtoimplementmonitoringprogramwhichwouldaimatassessingrealenergy consumptionintargetedbuildings.sincetheprogramhasonlybeeninitiatedin2009andfirst projectshavejustbeenachieved,comprehensiveassessmentonfirstprojectswillnotbe availablebefore2013/14. Sources/References InterviewwithThomasSanchez,strategyandsustainabilitydepartment,CaissedesDépôts InterviewwithFrankHovorka,HeadofRealEstatesustainablepolicy,CaissedesDépôts InterviewwithLaurentSindres,SavingFundsdepartment,CaissedesDépôts workshopdiscussion,11 th January 33

39 TheCarbonTrust 1. Programmes TheCarbonTrustisnotbank,butnot-for-profitcompanywhichamongstmanyactivities supportsthefinancingofenergyefficiencymeasuresintheuk.thisactivityhassomeuseful contraststopublicbanklendingforenergyefficiency.theinformationbelowrelatestotwo programmesfundingsmeinvestmentsinenergyefficientequipment. A.government-fundedprogrammeprovidinginterest-freeloanstoSMEsforenergysaving equipment.thisprogrammehasrunsince2009.withconstraintsonpublicbudgetsthe programmewasendedinenglandandscotland,butcontinuesinnorthernirelandandwales. Theloansrangefrom3,400Euroto450,000Euro(CarbonTrust2012a). B.AnEnergyefficiencyfinancingschemeinco-operationwithSiemensFinancialServices Thisprogrammestartedin2011andisplannedtolendaround677millionEuro(550million GBP)forthenextthreeyears.ItprovidesdirectfinancingforSMEsandbiggerUK-based companies,oftensoldthroughequipmentsuppliers.siemensfinancialservicesoffersloansfor energyefficientequipmentatmarketinterestratesorleasesenergyefficiencyequipmentto customers.thecarbontrustoffersindependentenergysavingassessments,estimatingthat 170,000tCO 2couldbesavedoverthelifetimeoftheequipment(CarbonTrust2012b).The commercialschemehasnoupperloanlimit(carbontrustandsiemensfinancialservices 2011). 2. EnergyefficiencyrelatedpolicyobjectivesofInterest-freeloanprogramme TheCarbonTrustrecognisesthevariousbarrierstoenergyefficiencyinvestmentsinSMEs(e.g. limitedaccesstofinance,lackofawareness,andlowconfidenceinthebusinesscaseofee projects),whichpreventcosteffectiveenergysavingopportunitieswithshortpaybackperiodto berealized. CarbonTrustaimstotacklethesebydemonstratingthebusinesscaseofenergyefficiency measurestocompaniesaspartoftheassessmentforfinancing.thisallowsfirms financial officerstotakefinancingdecisionsthattheyotherwisewouldnottake.theobjectivesofeachof theprogrammesdiffer,duetotheirnature.thesimplebusinessmodeloftheprogrammesis thatenergysavingspayofftheupfrontcostofdeployingenergyefficiencyequipment (Macroberts2011).Thespecificcharacteristicsofthetwoprogrammesaredescribedseparately below. Thegovernmentprogrammeaimsatmaximizingcarbonsavingsbyprovidingpublicfundingto unlockprivateinvestmentincarbonreduction. 34

40 Table1a:RelativeimportanceofCT sobjectivesaroundenergyefficiency Importance Verylow Low Medium High Veryhigh Outcomesforenergy performanceofprojects/ Depthofsavings/project Maximise annualco 2 savings Achievingenergy efficiencyobjectives indirectly(e.g.building financialexpertise, supplymarketcapacity) Trainenergy efficiency suppliers Promotingtake-upofthe financing/leveraging funds Unlock private investment 3. SelectionprocessofInterest-freeloanprogramme a. Financialcriteria/model Eligibility AllenergyefficiencyprojectsfromSMEsareeligiblethatpromiseenergysavingstopaybackthe interest-freeloaninyears. Selection/Financing TheCarbonTrustcreatesstreamofprojectsbyprovidingpotentialcustomerswithlistof creditedsuppliersofeeequipment.carbontrustcalculatesthebusinesscaseforfirms,showing ratesofreturnfromenergycostsavings.certainsectorsaretargeted.forexample,hotelswere shownthattheycouldsignificantlyincreaseprofitmarginsattimesofweakmarketdemand, through20%savingonenergycoststhatwereusuallyaroundtheir5-6%ofturnover,so generating1%+profitmargin. b. Energyefficiencycriteriamodel Selection/Financing ProjectsmustreduceatleasttCO 2annuallyforeach1200Euroinvested.Theapplicationof thisselectioncriteriaaimsatmaximisingenergyreturnsforgivenamountofmoney.the selectioncriteriaareadjusteddependingondemandinthemarket,thecarbon/loanration becominglowerastheongoingrecessionreducedinterestinloans. 4. AssessmentofoutcomesofInterest-freeloanprogramme Depthofdirectenergyefficiencyoutcomesfromprojects ThecarbonreductionrequirementoftCO 21200Eurotargetsprojectssuchaslighting, heating,refrigeration,andsomeindustrialprocesses.projectssuchasphotovoltaicareexcluded, becauseoftherelativelylowannualcarbonreductionpereuroinvested. 35

41 Buildingmarketcapacity Accordingtotheintervieweethecapacityofenergyefficiencyproductsupplierstomarket themselvesandtoexplainenergyefficiencysolutionstotheircustomerswassignificantly boostedbythebusinesscaseanalysisdoneforthecarbontrustfinancing.thecapacityofclient firmsalsoincreased:onceoneenergyefficiencyprojectwassuccessfullyfinanced,itoften generatedmoreinterestinthefirm'smanagementforfurtherenergyefficiencyprojects,and alsoestablishedtheconnectionwiththecarbontrustandenergyefficiencyequipment suppliers. Financialattractiveness In2009/2010theinterest-freeprogrammeprovided2,100loansworth82millionEurotoSMEs, beforeitwasscaleddowntonorthernirelandandwales.theseallowedsmestoreducetheir annualenergycostbyaround27millioneurooverthelifetimeoftheenergyefficiencymeasures (DECC2011). Table2a:CarbonTrust srankingofoutcomes Importance Verylow Low Medium High Veryhigh Outcomesforenergy performanceofprojects/ Depthofsavings/project Most attractiveee projects selected Achievingenergy efficiencyobjectives indirectly(e.g.building financialexpertise, supplymarketcapacity) Expertiseof EEsupplier increased Promotingtake-upofthe financing/leveraging funds [Not commented on] 5. EnergyEfficiencyrelatedobjectivesofCarbonTrustandSiemensFinanceServices Programme TheprogrammewithSiemensFinancialServiceshasbeensetupwiththemaximizationof financialreturnsasitsprimarygoal.energysavingsfromenergyefficiencyequipmentarean additionalbenefit,whichisofinteresttothecarbontrust. 36

42 Table1b:RelativeimportanceofCT sobjectivesaroundenergyefficiency Importance Verylow Low Medium High Veryhigh Outcomesforenergy performanceofprojects/ Depthofsavings/project Energy Efficiencyis anadditional benefit Achievingenergy efficiencyobjectives indirectly(e.g.building financialexpertise, supplymarketcapacity) (Not mentioned) Promotingtake-upofthe financing/leveraging funds Maximise financial returns 6. SelectionProcessofCarbonTrustandSiemensFinanceServicesProgramme a. Financialcriteria/model Eligibility SiemensFinancialServicescarriesthefinancialriskandthereforeassessestheriskassociated withprovidingfinancetotheapplicant,whenconsideringproject. Selection/Financing Theinterestchargedependsontheapplicant strackrecordandtheprojectcost.thepayback periodcanbetoyearsandinthecaseofphotovoltaicinstallationsupto10years. b. Energyefficiencycriteriamodel Eligibility Theprogrammeappliesnoenergyefficiencycriteria,exceptthatanticipatedenergysavings matchorexceedpayments(carbontrustandsiemensfinancialservices2012). 7. AssessmentofoutcomesofCarbonTrustandSiemensFinanceServicesProgramme Depthofdirectenergyefficiencyoutcomesfromprojects Accordingtooneintervieweethedepthoftheresultingenergyefficiencysavingsarelowerthan inthegovernment-fundedprogramme,withtheabsenceofspecifiedenergyefficiencycriteria allowingbroaderpoolofeeprojects. Buildingmarketcapacity Energyefficiencyequipmentsuppliersortheircustomerscreatetheprojectstream,and approachthecarbontrustforaccesstothesiemensfinancialservicefunding.theexistingof fundingprovidessupplierswithgreaterincentivestomarkettheirproducts,andexpandthe market.onreceivingapplications,thecarbontrustdoesnotrecommendalternativesuppliers 37

43 ormeasuresinanattempttodrivethemarket(asthiswoulddetersuppliersfrombringing projectstotheprogramme).baselinesareassessedbycarbontrusttechnicalexperts,foreach projectbylookingatexistingon-siteconsumptionandestimatingfutureconsumption,withand withoutnewtechnology. Financialattractiveness Theprogrammehassofarachievedlowerratesofuptakethanthesubsidised0%interestrate programme. TheCarbonTrustdemonstratesthebusinesscasetopotentialcustomersbycalculatingenergy cost.itwasreportedthatenergyefficiencyfinancinghasbecomeeasieroveryearsashigher energycostsintheukimprovethebusinesscase. Financingforleasingoftheenergyefficiencyequipmentisalsoprovidedforbytheprogramme, andthiscanbemoreattractiveforcustomersandsuppliers.oneintervieweeexplainedthat thesebenefitsinclude:lowertaxesandeasierconsiderationofthelifetimesavingsofthe equipment,assiemensownstheequipment,carriestheupfrontcostandreceivesregularlease payments. Table2b:CarbonTrust srankingofoutcomes Importance Verylow Low Medium High Veryhigh Outcomesforenergy performanceofprojects/ Depthofsavings/project Achievingenergy efficiencyobjectives indirectly(e.g.building financialexpertise, supplymarketcapacity) Lower energy savingsper averageeuro spent Build-upof supplier capacityto present business case Promotingtake-upofthe financing/leveraging funds Broadpool ofenergy efficiency projects 8. Expertcommentsontheimpactoftheselectionprocessonachievementonoutcomes Adjustmentofselectioncriteria Theuseofselectioncriteriainthegovernmentprogrammeincreasedcarbonsavingsforgiven amountoffinancing,underconditionswheredemandwassufficientlystrong.theseselection criteriawereadjusteddependingondemandinthemarket,asothereconomicfactorschanged, butseemedtoremaineffectiveatpromotinghigherlevelsofenergyefficiency. 38

44 Achievementofthehighestlevelofpotentialenergysavingswastradedoffagainstthechoiceto incentiviseindividualsupplierstocreatedemandthesupplierswereabletoselltheirenergy efficiencyequipment,evenifitwasnottheidealequipment. IntheSiemensfinanceprogramme,theabsenceofenergyefficiencycriteriatradedoffthe achievementofhigherenergysavingsagainstfasterratesofinvestment. Usinginterestedpartiestogeneratedemand Theschemesweresuccessfulbecausetheymotivatedprivateequipmentsupplierstobring potentialcustomerstothesourceoffinance.theirincentivetodosowasnotonlythesourceof finance,butthehelpthattheywouldgetfromtherespectedcarbontrustinbuildingand presentingthebusinesscasetothepotentialcustomer.surprisingly,equipmentsuppliersoften neededsignificanthelpinpresentingsolidbusinesscase.thecarbontrust sworktherefore wasalsobuildingupthecapacityofthesuppliermarkettoseekwiderclients. Waystointerestdecisionmakersinfirms OnekeyfactoronsuccessoftheprogramwasCarbonTrustcreatingtheflowofenergy efficiencyprojectsandtodemonstratethebusinesscasetocustomers.inaddition,theappealof the0%interestrateinthegovernmentprogrammeseemedtobringingreaterdemandthan ratethatwasstillbringingeconomicreturnsforthesmes.althoughprojectsfinancedwith marketrateofintereststillgavesignificantpositivereturns,itseemedthattheideaof getting somethingforfree i.e.thesubsidisedloanincreasedtheappealofenergyefficiencyinvestment forfirmsunderthegovernmentscheme. Partneringtofacilitatefinancing Siemens experienceinusingleasingtofinanceothertypeofproductssuchasinformation technologysince2000intheuk(siemens2000)enabledthemtobecomfortablewithlending forfinancingenergyefficiencyequipment,particularlyinco-operationwiththecarbontrusts specialistknowledgeofenergyefficiency,whichtheydeliveredthroughassessmentservices. 39

45 Sources/References interviewwithanexpertfromcarbontrust CarbonTrust(2012a).0%businessloanseligibility, CarbonTrust(2012b).TheCarbonTrustAnnualReport2011/2012:Acceleratingthemoveto globallowcarboneconomy.london:carbontrust. CarbonTrustandSiemensFinancialServices(2012).EnergyEfficiencyFinancing,Customer benefits. CarbonTrustandSiemensFinancialServices(2011).TheCarbonTrustandSiemenslaunchnew greenfinancedealworth 550milliontogreenbusinessesintheUK,Pressrelease. DECC(2011).UKReportonArticlesand14oftheEUEnd-useEfficiencyandEnergyServices Directive(ESD):Updateonprogressagainstthe2007UKNationalEnergyEfficiencyAction Plan,DepartmentofEnergyandClimateChange. Macroberts(2011).FinanceSchemeforGreenBusiness, Siemens(2000).Annualreport2000.Munich:SiemensAG. 40

46 EuropeanInvestmentBank(EIB) 1. Programmes TheEIBhasalmost90%ofitsfinancingactivitiesintheEUsupportingEUpolicyobjectives(EIB 2012a).TheEIB senergyefficiencylendingamountedtonearly1.3billioneuroin2011,withits energylendingbeing12.8billioneuro(20%ofitsoverallfinancing)(eib2012c).typicallythe EIBestablishescreditlinesprovidingloansthroughlocalbankstoenergyefficiencyprojects. Theseincludebuildings,industryandSMEs,energyservicecompanies(ESCOs),aswellashigh efficiencycogenerationplants(chps)anddistrictheatingandcoolingsystems.theeibprovides directfinancingforlargescaleenergyefficiencyprojectsandtechnicalassistance(eib2012a). Furthermore,theEIBhasjointinitiativeswiththeEuropeanCommissiontoprovideenergy efficiencyfinancing:thetechnicalassistanceprogramfordevelopingenergyefficiencyprojects (ELENA),theuseofEUstructuralfundstoestablishrevolvingfundsforsustainableurban developmentprojects(jessica),andtheeuropeanenergyefficiencyfund(eee-f)forenergy efficiencyandrenewableprojectswhichismanagedbydeutschebank(foranoverviewsee Withanaetal2011). TheEIBisreviewingitsenergylendingpolicy,includingitslendingobjectivesandproject screeningcriteriaandreporting(eib2012a).thenewenergylendingpolicywillbeannounced summer2013afterapprovalbytheeib sboardofdirectors. 2. Energyefficiencyrelatedpolicyobjectives TheEIB,ownedbythe27memberstates,aimstocontributetoEUpolicyobjectives.These includeincreaseingrowthandemploymentpotential,economicandsocialcohesion, EnvironmentalSustainabilityandClimateAction(EIB2012b).EIB senergylendingpolicy supportstheeu s energyandclimatetargets.thisshapestherelativeimportance placedonvariouspossiblegoalsforenergyefficiencylending,asshownintable1. Table1:RelativeimportanceofEIB sobjectivesaroundenergyefficiency Importance Verylow Low Medium High Veryhigh Outcomesforenergy performanceofprojects/ Depthofsavings/project Contribution toeu targets Achievingenergy efficiencyobjectives indirectly(e.g.building financialexpertise, supplymarketcapacity) Tobuild energy efficiency financing expertiseof localbanks 41

47 Promotingtake-upofthe financingleveraging funds Provide long-term financingfor largescale projects 3. Selectionprocess a. Financialcriteria/model Eligibility Projectsshouldbeeconomically,financiallyandtechnicallysoundaswellassociallyand environmentallysustainable(eib2012a).intermediarybankscarryprojectrisks. Selection/Financing Thefinancialappraisalprocessforenergyefficiencyprojectsdoesnotdifferfromothersectors. However,ifprojectsqualifyforclimatemitigation,EIBcanincreaseitsfundingsharefrom50% to75%oftotalinvestmentcost. b. Energyefficiencycriteriamodel Eligibility Projectsqualifyasenergyefficiencyprojectswhentheymeetoneofthefollowingcriteria:the projectachievesanincreaseinenergyefficiencyofatleast20%againstbaseline,or50%ofthe investmentcostcanberecoveredthroughenergysavings.combinedheatandpower(chp) projects,includingcoalandlignitefiredstations 28 countalsoasenergyefficiencyprojectsifthey complywiththeeuropeanchpdirective(eib2012a). Selection/Financing TheEIBactivelysupportsthecreationofpipelineofenergyefficiencyprojectsthroughthe ELENAinitiative.Inthestandardbusinesscycleintermediarybanksordirectlyproject promotersapproachtheeibwithinvestmentproposals.atarrivaloftheapplication,theeib decideswhetherprojectsmeetenergyefficiencycriteriaorwhethertheyfittoothereligible sectorssuchassme,r&d,ortransport.intermediarybankstranslateeib sprojectselection criteria,andhavetoensurethateveryindividualprojectmeetstheeiblendingprojectcriteria. 4. Assessmentofoutcomes Depthofdirectenergyefficiencyoutcomesfromprojects TheEIBdirectlytranslatedtheEU s20%aggregateeu-wideenergyefficiencyimprovement targetintominimum20%energyimprovementtargetforitsprojects.theeibhasmovedfrom itstraditionalfinancingofchptoenergyefficiencyprojectsinbuilding,becauseofchangesin themarketleadingtoreduceddemandforchpinvestment.accordingtoeibstaffthereisno trade-offbetweendepthofprojects energyefficiencyperformanceandlendingvolumetargets. MemberStatesasshareholdersrepresentedbytheboardofgovernorsformulatelending volumetargetsforpublicpolicyobjectives(e.g.climateaction,energyandtransport)inthe 28Specificadditionalcriteriaapply 42

48 corporateoperationalplanwhilsttheenergyefficiencycriteriaaresetbytheenergylending policy(currentlyunderreview),proposedinternallyandagreedbytheboardofgovernors, independentoflendingvolumes. Buildingmarketcapacity WithEIBlendingoftenbeingdistributedthroughintermediarybanks,theEIBcouldbe consideredtobebuildingmarketcapacity,butthiswasnotspecificallyreported,andhasnot beenanalysed. Financialattractivenesstoclients TheEIBofferslong-termfinancingyearsforlargescaleprojectswithtermsof Table2:EIB srankingofoutcomes Importance Verylow Low Medium High Veryhigh Outcomesforenergy performanceofprojects/ Depthofsavings/project 20%energy efficiency criteria Achievingenergy efficiencyobjectives indirectly(e.g.building financialexpertise, supplymarketcapacity) Notranked Promotingtake-upofthe financing/ Leveragingfunds Notranked 5. Expertcommentsontheimpactoftheselectionprocessonachievementonoutcomes TheEIB senergylendingpolicyreviewislikelytoconsiderwaystoaggregateenergyefficiency projectstoincreaseprojectscaleandfinancialattractiveness.energyefficiencyprojects constitutechallengeduetotheirrelativelysmallprojectsize.eibhasexperienceinfinancing largescaleprojects,whileenergyefficiencypotentialisfrequentlyinsmallerprojects.the reviewalsoaimstostandardiseenergyefficiencytechnicaldocumentationandriskdistribution. 43

49 Sources/References interviewwithaneibexpert EIB(2012a),ConsultationPaper:TheEuropeanInvestmentBankreviewsitsEnergySector LendingPolicy, _en.pdf EIB(2012b),TheEIBGroupOperationalPlan , EIB(2012c),TheEuropeanInvestmentBankPromotingEnergyEfficiency, Withana, S., Nunez Ferrer, J., Medarova-Bergstrom, K., Volkery, A., and Gantioler, S. (2011), Mobilising private investment for climate change action in the EU: The role of new financial instruments,ieep,london/brussels. 44

50 EuropeanBankforReconstructionandDevelopment(EBRD) 1. Programmes Since2006theEBRDhasprovided:(i)directloansforlargescaleindustrialormunicipalenergy efficiencyprojectsand(ii)loansthroughlocalbankstocommercialandresidentialborrowers withinitssustainableenergyfinancingfacilities(seff).thesecreditlinescanbecombined withgrantsandinvolvefreeenergyefficiencytechnicalassistancesponsoredbydonorcountries forthelocalbanksaswellasthefinalbeneficiaries.ebrdoperatesmainlyineasterneurope andrussia;seffsexistin15countries.bytheendof2011ebrdcommitted1.9billioneurofor theseseffs(ebrd2012c). Thefinancingconditionsvaryacrosscountriesandprojects.Theloansforindustrialenergy projectsrangefromfewhundredthousandtofewmillioneuroandtheloansforresidential energyefficiencyprojectsrangefromfewthousandeurotofewhundredthousandeuro (EBRD2012c). 2. Energyefficiencyrelatedpolicyobjectives EBRDwasestablishedtosupportcountriesfromcentralEuropetocentralAsiaintheir transitiontowardswell-functioningmarketeconomies.atthesametimeebrdhasalwayshad parallelenvironmentalmandate(ebrd2012a,unep2009). Accordingtooneinterviewee,itsobjectivesaroundenergyefficiencyaredeterminedbythe interplaybetweenvariousgroupsofactorswithintheinstitutionalarrangementsofthebank whoprioritisepolicyobjectivesdifferently:theshareholders,thebankersandtheenergy efficiencyteam.theshareholders,almostallcountries,primarilywanttheebrdtobuild financialexpertiseandcreatemarketcapacity,soastoenablemarkettransitionintheformer Sovieteconomies.Thebankersfocusisonincreasingthetotalvolumeofinvestment,asthisis themainmetricmeasuringperformance,includingindividualperformance.theenergy efficiencyteamaimstoincreasetheenergyefficiencyoutcomesfromprojectsinthebank s portfolio. Insummary,fortheEBRDaswhole,wewoulddescribetherelativeimportanceasinTable1: Table1:RelativeimportanceofEBRD sobjectivesaroundenergyefficiency Importance Verylow Low Medium High Veryhigh Outcomesforenergy performanceofprojects/ Depthofsavings/project Energy efficiency teamaimsat energy efficiency projects 45

51 Achievingenergy efficiencyobjectives indirectly(e.g.building financialexpertise,supply marketcapacity) Promotingtake-upofthe financing/leveraging funds Bankersaim at investment volumes Shareholder aimat building market capacity 3. Selectionprocess a. Financialcriteria/model Eligibility LocalbankshavetocomplywithEBRD sfinancialcriteria.accordingtooneintervieweeebrd s financingmodelsareconservative,i.e.thebankappliesrelativehighriskrequirementforits lendingtolocalbanks.atthesametimelocalbanksprovideloanstothefinalbeneficiaryattheir ownrisk. Selection/Financing Theprojectappraisalincludesmanyfactors,includingbenefitcostratio,paybackperiod,net presentvalueandriskindicators.forexample,ebrdrequiresinternalratesofreturn(irr) greaterthan10%.sinceonaverageeeprojectsunderseffobtainirrsof20-25%,this requirementdoesnotseemtopreventselectionofeeprojects(ebrd2011). Theprofileofenergyefficiencytechnologiesinreducinginvestmentriskintheprojectas wholecouldbeincorporatedinfutureintothefinancialassessmentofprojects.thestandard criteriahavetobemetalsobyprojectswithenergyefficiencyaspects.forexample,ifprojectis overleveragedandsorisksnotmakingpaymentonthedebt,theprojectisnotselected. b. Energyefficiencycriteria/model Eligibility Criteriavarybetweenprojecttypes.Energyefficiencyprojectsmustcomplywithlistof technologies/productsorhavetoachieveminimumperformancerequirementofforexample 20%inspecificenergyuse.Eachfacilityhasitsownlistoftechnologies/productswhichis createdandexpandedbyanindependentconsultant. Industrialenergyefficiencylargescale:ForbigprojectsEBRDdoesnotuse minimumstandards,butratherrecommendsenergyefficiencymeasures. Industrialenergyefficiencysmallscale:ForSMEindustrialenergyefficiencylistof technologiesisused.itincludeson-siteco-generationofheatandelectricity, modernisationofsteamproductionanddistributionsystems,upgradeofcompressedair productionanddistributionsystems,improvedheatrecoveryfromprocesses,heat insulation,load-matchingvariablespeedmotorcontrols,higherefficiencylighting,the introductionorimprovementofenergymanagementandcontrolsystems. 46

52 Residentialenergyefficiency:Forresidentialenergyefficiencylistsofeligibleprojects setminimumstandards,forexampledouble-glazing,insulationofwalls,insulationof roofs,high-efficiencybiomassstoves/boilers,solarwaterheaters,high-efficiencygas boilers,heatpumps(ebrd2012c). Selection/Financing EBRDhasthreeapproachestoacquireenergyefficiencyprojects:(i)companiesapplywith energyefficiencyprojectsforfinancingandebrdappraiseswhethertheseprojectsmeetthe financingandenergyefficiencyrequirements,(ii)ebrddevelopstheenergyefficiency capabilityofanalreadyplannedprojectwithcommercialclientcomponent,or(iii)ebrd proactivelybuildsenergyefficiencyprojectsfromscratch.theproactivebusinessdevelopment, accountsforofebrd s400projectsperyear. 4. Assessmentofoutcomes Depthofdirectoutcomesfromenergyefficiencyprojects Energysavingsareassessedex-ante.Sofarthereisnosystematicex-postassessmentofactual energysavings(ebrd2011b).thebaselineforassessingenergysavingsissetoncase-to-case basis.accordingtotheinterviews,thedepthofanenergyefficiencyprojectislessimportant thanthepracticabilityofselectioncriteriainmeetingthebank swidergoals.escos,forexample, werepromotedbecausethisbusinessmodelcaneasilybereplicatedandinvolvestheprivate sector.thephysicalimpactonenergysavingsishoweverrelativelylow.itwasreportedthatthe approachofspecifyingeligibletechnologies/productsissufficientlyeasytoimplement,even thoughitrisksmissingthefulltechnicalpotentialofenergyefficiencysavingsthatwouldcome fromanintegratedapproach.thisintegralapproachidentifyingthepotentialenergysavingsat projectlevelwasreportedtobechallengingduetodifferentenergyefficiencyperformances acrossindustrysectors. Buildingmarketcapacity ThecreationofmarketcapacityandbuildupoffinancialexpertiseisthecoregoaloftheEBRDin general.soprojectsareassessedfortheirpotentialimpactsonthetransitionimpacttheycould haveforexample,inrelationtotheexistinginstitutions,thedevelopmentoftheprivatesector, andmatrixofotherfactors.accordingtooneintervieweetheeligiblelistof technologies/products,forexample,stimulatesnewentrantsinthemarketwhowanttosupply theirenergyefficiencytechnologyundertheseff. Financialattractivenessforborrowers Theintervieweesreportedlackofdemandfromclientsforenergyefficiencylending.Thislack ofdemanddoesnotrelatetothecriteriaused,butisratherduetolackofcapacitywithinfirms (e.g.projectmanagementskills),lackofcapacityofenergyefficiencysuppliers,splitsbetween financialdecisionmakersandengineerswithinfirms,low(e.g.subsidized)energyprices,or viewsthatlimitedborrowingcapacityisbestspentonalternativeprojectswithperceivedhigher returnsthanenergyefficiency. EBRDintervieweeswereaskedtoranktheiroutcomesfromusingtheircriteria(Table2,below). 47

53 Table2:EBRD srankingofoutcomes Importance Verylow Low Medium High Veryhigh Outcomesforenergy performanceofprojects/ Depthofsavings/project Achievingenergyefficiency objectivesindirectly(e.g. buildingfinancialexpertise, supplymarketcapacity) Promotingtake-upofthe financing/leveragingfunds Energy efficiency technology listmight limitdepths ofsavings Energy efficiency technology listeasyfor implementation Track recordin energy efficiency lending since Expertcommentsontheimpactoftheselectionprocessonachievementonoutcomes Overall,theinterviewssuggestthatEBRD sapproachputsstrongerfocusonbuildingmarket capacityandincreasinginvestmentvolumesthanonthephysicalimpactsofenergyefficiency projects.thisisalsorelatedtothewaydifferentinterestsofactorswithinthebankinter-relate. Generally,decisionsonenergyefficiencyaspectsareprojectspecificandinvolvediscussions withclientsandexpertswithtechnologicalknowledge.thesefactorscuttheincentivesfor privatebankstoinvest,becauseitincreasesthetimeneededfortransition.evenwhere risk/returnratiosarebetterthanothers,thisaddedtimeexcludesenergyefficiencyaspectsof projectsbecauseindividualbankersarejudgedonnumberandtotalvolumeofprojects,not theirrisk/returnratios. TheEBRDclearlyhasrecognizedenergyefficiencyasaninterestingbusinessopportunityand establishedanenergyefficiencyteamthatscreensebrd sprojectportfoliotoidentifyenergy efficiencyopportunities.inthefuture,ebrdenvisagesengagingmoreinbroaderpolicy discussions/objectives. 48

54 Sources/References InterviewswithexpertsinvolvedintheSEFF. EBRD(2010),EnergyEfficiencyintheEBRD soperationsandopportunitiesfortechnical cooperation, ficiency_sector.ppt EBRD(2011a),ClimatechangemitigationpolicyandactioninEasternEurope, Presentation-Climate-Change-Mitigation-Policy-18-Apr-2011.ppt EBRD(2011b),SpecialStudybytheEvaluationDepartment,SustainableEnergyInitiativePhase StrategicReview, EBRD(2012a),AbouttheEBRD, EBRD(2012b),Improvingindustrialenergyefficiency, EBRD(2012c),SustainableEnergyFinancingFacilities, UNEP(2009),EnergyefficiencyandtheFinancesector:surveyonlendingactivitiesandpolicy issues,reportcommissionedbyunepfinanceinitiative sclimatechangeworkinggroup, January

55 KreditanstaltfürWiederaufbau(KfW)outsideGermany 1. Programmes ThebulkofKfW sactivitiesareingermany,butkfwalsofinancesenergyefficiencyprojects outsidegermany.theseenergyefficiencyprogramsincludethesmefinancefacilityenergy EfficiencyWindow(SMEFF-EE),theMunicipalFinanceFacilityEnergyEfficiencyWindow(MFF- EE)andtheEuropeanLocalEnergyAssistance(ELENA).UndertheseprogramsKfWprovides loansincombinationwitheugrantsthroughintermediarybankstosmes,municipalities,but alsohousingassociationsandescos. SMEFFandMFFtargetEUaccessionandnewEUmemberstates;ELENAisavailableforallEU countries.smeffandmffwereestablishedin2000,withanincreasedemphasisonenergy efficiencyexistingsince2010.elenawasinitiatedin2011.thisfacilityispartoftheeuropean Commission sintelligentenergyeuropeprogrammeandisalsoimplementedbyeib,ebrdand CEB(NúñezFerrer,Volkeryetal.2012).EnergyefficiencylendingformspartofKfW shigh proportionoflendingrelatingtoclimateandrenewableenergygoals:in2011kfw,committed 22.8inbillionEuro,or32%ofitstotalcommitments,inenvironmentandclimateprotection (KfW2012a). Theloansareofferedatorclosetomarketinterestrates.Thelevelofthegrantislinkedtothe loan.forexample,underthesmeffandthemffthegrantcanbeupto20%oftheloantothe bankandupto15%oftheloantothefinalbeneficiary.grantsunderelenaareupto5%ofthe loantothefinalbeneficiary,correspondingtoleveragefactorofatleast20.theseprogrammes targetsmallerscaleenergyefficiencyprojects.thus,theloansforthefinalbeneficiaryareupto millioneurforthesmeffanduptomillioneuroforthemff.underelenathegoalisto supportprojectswithvalueto50millioneuro(kfw2012b-d). 2. Energyefficiencyrelatedpolicyobjectives TheseprogrammessupporttheEU energyandclimatetargets.Byinitiatingnew energyefficiencyprojectsandusingintermediarybanksandlocaltechnicalexpertise,kfwaims toincreasethelocalcapacityinfinancingandimplementingenergyefficiencyprojects. Table1:RelativeimportanceofKfW sobjectivesaroundenergyefficiency Importance Verylow Low Medium High Veryhigh Outcomesforenergy performanceofprojects/ Depthofsavings/project EU energyand climate targets Achievingenergy efficiencyobjectives indirectly(e.g.building financialexpertise, supplymarketcapacity) EEfinancing expertiseof localbanks 50

56 51 Promotingtake-upofthe financing/leveraging funds KfWaimsto lendcloseto market interest rates 3. Selectionprocess KfWsetsbothfinancingrequirementsfortheintermediarybankandenergyefficiency requirementsforthefinalbeneficiarythatneedtobeachieved. a. Financialcriteria/model Eligibility KfWassessestherisk-adjustedreturnoncapitalofprovidingfinancingtotheintermediary bank.thebankhastocomplywithkfw srisk/returnrequirements,otherwisekfwwillnotlend tothem.thefinalprojectriskiscarriedbytheintermediarybank. Selection/Financing ThefinancialassessmentmodelofKfWdoesnotincludeadjustmentsmadetoweightthe differentnatureofenergyefficiencyreturns.whetherreturnscomefromenergyefficiency savingsorfromothervaluecreated(e.g.higherrents)isimmaterial. b. Energyefficiencycriteriamodel Eligibility Energyefficiencyprojectshavetoachievespecificenergyperformance.Investmentsinthe energyperformanceofbuildings,industry,infrastructure,equipment,etc.mustprovideenergy savingsofatleast20%.investmentsinrehabilitationofexistingbuildingsincludinglighting, heating,ventilationandairconditioningmustcomplywithanenergysavingratioof30%(kfw 2012d).Thesameenergyefficiencyrequirementsapplytoallcountries.Howeverthebaselineto calculatetheenergysavingsratiodependsontheexistinglocalenergyperformance. Selection/Financing KfWdoesnotcompareprojectswithintermediarybankstoeachother,butratherdecideson case-to-casewhethertheprojectapplicationfulfillskfw srequirements.toensureintermediary bankscancomplywithenergyefficiencyrequirements,kfwdiscussesthenatureofenergy efficiencyprojectpipelinewhichtheintermediarybankwillfinancebeforehand. 4. Assessmentofoutcomes Depthofdirectenergyefficiencyoutcomesfromprojects The20%energyefficiencycriteriaisrigorouslyappliedandcheckedinadvanceofinvestment, becauselaternon-performancewillresultintheneedtopaybackthegranttotheeu Commissionandtorecovertheloan.

57 Buildingmarketcapacity KfW slendingactivitiestointermediarybanksforsmeandmunicipalitiesaimtosupportlocal banksincreatingandextendingfinancingproductsforinvestmentincertainareas.kfwuses thisbusinessmodeloutsidegermanysince2000;thelinktoeuenergyefficiencyobjectiveswas initiatedin2010,inthemiddleoftheeumultiannualfinancialframework Financialattractiveness ForELENAthedemandhasbeenmodestsofar.TheconstraintsonlendingoutsideGermanyare notenergyefficiency-specific,butrelatetothecurrentmarketsituationandlargerchallenges withlendingtointermediarybanksforpublicauthorities. Table2:KfW srankingofoutcomes Importance Verylow Low Medium High Veryhigh Outcomesforenergy performanceofprojects/ Depthofsavings/project 20%energy efficiency criteria Achievingenergy efficiencyobjectives indirectly(e.g.building financialexpertise, supplymarketcapacity) Local expertisefor energy efficiency financing Promotingtake-upofthe financing/leveraging funds High leverage requirement 5. Expertcommentsontheimpactoftheselectionprocessonachievementonoutcomes TheinterviewsindicatethatKfW schoiceoftheselectionprocess/criteriaputsparticular emphasisonachievingthe20%energyefficiencycriteria.thelimiteddemandforenergy efficiencyprojectsisnotlinkedtotheselectionprocess/criteria,butrathertothecurrent situationoffinancialmarketandpublicbudgets.accordingtotheinterviewreasonsforlow numberofapplicationsare: Publicauthoritieshavemoreurgentprioritiesforpublicfundingthanenergyefficiency. Sovereignriskistoohighinsomecountries,sothatthebanksdonotpassKfW s risk/returnrequirements. Somepublicauthoritiesarenotallowedtotakeonnewdebt.Thisappliesforexampleto Germany,UK,Italy. Somecountriesarealreadyendowedwithfunctioningmunicipalfundingandarethus onlyinterestedinthegrantcomponentofelena. Somemunicipalitiescangetbetterfinancingconditionsfromlocalbanks.Thesebanks leantatinterestratesbelowtheratesatwhichkfwborrows. 52

58 TheadministrativerequirementswhichoftenincludetheneedfortranslationforEU grantfundingareconsideredunappealinglyheavycomparedtothesizeofthefinancing. Asdifferentcountrieshavedifferentfinancialrisks,KfWisnotwillingtoprovidethesame financingacross,e.g.inthenetherlandsandgreece.thereforekfwisinfavourofpublic guaranteemechanismsforlendingtocountrieswithhigherriskprofiles. Sources/References interviewswithexpertsinvolvedintheeeprogramssmeff-ee,mff-eeandelena KfW(2012a),GreeningPoland sandgermany seconomies,session3:financingeuclimateand EnergyPolicies:EUFundsandInnovativeFinancialInstrumentsforDecarbonisation, KfW(2012b),MunicipalFinanceFacilityEnergyEfficiencyWindowpromotional creditprogrammes, Konzern/Unternehmen/Auftrag/Sonderaufgaben/Foerderkredite_EU/MFF_EE_Leaflet_final.pdf KfW(2012c),ProgrammeLeafletELENA(EuropeanLocalEnergyAssistance), KfW/Auftrag/Sonderaufgaben/F%C3%B6rderkredite-EU/ELENA-%E2%80%93-European- Local-ENergy-Assistance/index.html KfW(2012d),SMEFinanceFacilityEnergyEfficiencyWindowpromotionalcredit Programmes, Konzern/Unternehmen/Auftrag/Sonderaufgaben/Foerderkredite_EU/SMEFF_EE_Leaflet_final.p df NúñezFerrer,J.,A.Volkery,etal.(2012)."Theuseofinnovativefinancialinstrumentsfor financingeupoliciesandobjectives:implicationsforeuandnationalbudgets.cepsspecial Report,October2012." 53

59 CASE STUDY ENERGY EFFICIENCY PROGRAMMES OF THE HUNGARIAN DEVELOPMENT BANK ABOUT THE HUNGARIAN DEVELOPMENT BANK The Hungarian Development Bank Private Limited Company (hereinafter: the Bank) promotes development policy objectives through financing investments in Hungary as a classical development bank. The objective of the Bank is to enhance investments and development, to bridge gaps in infrastructure, to encourage the expansion of Hungarian businesses, primarily that of the SME sector both in Hungary and abroad, to stimulate technological and environmental development, energy efficiency and employment. DESCRIPTION OF THE PROGRAMMES 1 Overview of the Bank s loans 1