Europe has set its sights on slashing carbon emissions from buildings by 90% by 2050. In order to meet this ambitious goal, massive investment in building renovations is needed. It is estimated, by the Building Performance Institute of Europe, that these renovations will cost €3.5 trillion.
Panama Bartholomy, Director, Investor Confidence Project Europe, US who will be presenting at ESCO Europe 2015, says that this level of finance will have to be carried by the private sector.
Investor Confidence Project
On November 5, Environmental Defence Fund Europe/UK rolled out its signature energy efficiency initiative, the Investor Confidence Project Europe, to accelerate investment into energy efficiency by standardising the project development process and documentation. Bartholomy says that the initiative will provide an essential piece of the jigsaw puzzle, leading to increased confidence among building owners and investors in the reliability of projected savings.
In the US, the Investor Confidence Project, which has created a series of protocols for developing and documenting energy efficiency projects in different categories of buildings, has gained considerable traction with banks, investors, the energy efficiency industry, and city and state programmes. In addition to protocols, the initiative has launched a credentialing system that provides third-party validation, called Investor Ready Energy Efficiency ™, as well as an open-data initiative.
Building on the success of the US-based programme, the Investor Confidence Project Europe is convening investors, banks, property owners, and other industry stakeholders to establish open-source protocols to standardise the development of energy efficiency projects in Europe.
Standardising energy efficiency projects
Standardization is critical. Bartholomy points to the financial markets which can only function when products are consistent. “In virtually all established markets, from car loans to timeshares, standardisation has helped to accelerate underwriting, reduce long-term liability, and spur investment.”
Additionally, banks and investors can only aggregate and securitize energy efficiency projects, which tend to be too small on their own to attract investment by the capital markets, when they are streamlined, explains Bartholomy. He adds that standardisation also reduces due diligence and transaction costs, and allows for comparison of project results, which will eventually lead to an accumulation of actuarial data on project performance.
Finally, banks and investors can only hire and build out energy efficiency teams once uniform processes are in place; they simply cannot build stable businesses around the ad hoc processes that currently exist in the energy efficiency sector.
Securitization, an accumulation of project data, and established industry personnel are all necessary conditions for a thriving, established energy efficiency financing market. “Unless we can get to that stage with energy efficiency finance, we can’t fund the huge amount of investment needed to achieve our climate and energy security goals.” points out Bartholomy.
Private finance for energy efficiency
It is important to understand that the Investor Confidence Project Europe is not focused on developing new technical standards since plenty of these exist, says Bartholomy. Rather, it aims to use available standards in a common way through the entire process of developing and documenting energy efficiency projects.
Furthermore, the Investor Confidence Project Europe does not exist simply to enforce a US model. The fundamental process of developing a project will be the same globally, but with different engineering standards. “What will be common between the US and Europe is an approach, not specific standards or protocols. This will attract institutional investors who want to invest in energy efficiency and operate on both sides of the Atlantic and globally,” explains Bartholomy.”
The Investor Confidence Project Europe has already gained powerful support. Both the Energy Efficiency Finance Investors Group – created by the European Commission and the United National Environment Programme Finance Initiative – and the International Energy Agency have come out in support of the initiative. A pan-European coalition of banks, investors, property owners, energy efficiency companies, and government agencies have already signed up to be part of a steering group.
“The investors have been clear: Standardise or we won’t engage in energy efficiency finance. Europe will not reach its economic or energy goals without their investment. The time to standardise and scale energy efficiency is now,” says Bartholomy.
Listen to investors
Bartholomy says that as the energy efficiency market is created, it is important to think about the goals being set. “If we set up programmes, plans and projects that the financial sector is not interested in then when we are finally ready to scale, we will not have attractive investments in our space. We will then have to re-engineer our approach. However, if we listen to what investors need in order for them to invest, we can design our projects, programmes and markets in accordance with that. We will then have a much better chance of achieving the scale we need.”
Bartholomy says he looks forward to hearing about best practices from ESCO's across Europe, what their experiences with securing funding has been, and what tools and relationships they would like in order to help drive deal flow for their businesses.