DENEFF keynote - Assembling the jigsaw of energy efficiency financing. Steven Fawkes.
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My keynote address at the DENEFF EFFIN launch event on 25th March 2015.
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DENEFF keynote - Assembling the jigsaw of energy efficiency financing. Steven Fawkes.
- 1. Energy efficiency finance: assembling the jigsaw Dr. Steven Fawkes DENEFF 25th March 2015
- 2. European Commission Disclaimer This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 649836. The sole responsibility for the content of this presentation lies with the authors. It does not necessarily reflect the opinion of the European Union. Neither the EASME nor the European Commission are responsible for any use that may be made of the information contained therein.
- 3. Status report on EE financing • Scale of market potential recognized • Co-benefits increasingly recognized • Growing interest from institutional investors • Slow development of the EE financing market – leading to frustration ✔ ✔ ✔ ✗ “The ratio of conferences to deals is too high!”
- 4. • Strong demand by owners and investors • Highly skilled and accredited workforce • A mix of financing products at attractive rates • Standardized tools for tracking and quantifying savings • Active secondary market A healthy European energy efficiency market would have:
- 13. “From a financier's perspective, energy efficiency projects entail high transaction costs and are perceived to be risky due to the difficulty of predicting accurately energy cost savings. Sufficient experience with underwriting energy efficiency loans and standardized evaluation methods for measuring and verifying energy savings is still lacking. The lack of secondary markets to provide exit opportunities for investors, or further liquidity to the investments is another important barrier.” — JRC Science and Policy Report, Financing Building Energy Renovations (2014), Marina Economidou and Paolo Bertoldi JRC conclusions
- 14. Citigroup conclusions Energy efficiency is in a category by itself. With the exception of one company packaging energy efficiency, energy efficiency projects do not yet meet the requirements of capital markets. The industry is just too disaggregated. No two projects or contracts are alike. Securitization is not practical or possible under these circumstances. Say you have 1,000 energy efficiency projects, Standard & Poor’s would have to read 1,000 documents to assess the risk. Fees won’t pay for that level of review. Michael Eckhart Managing Director & Global Head of Finance and Sustainability at Citigroup
- 15. International Energy Agency conclusions The IEA’s Energy Efficiency Market Report 2014 highlighted ICP as a program that will “facilitate a global market for financings by institutional investors that look to rely on standardized products.”
- 16. Energy financing Standardized Mainstream Large volume Multiple sources Standardized Mainstream Large volume Multiple sources NOT standardized NOT mainstream SMALL volume FEW sources
- 18. Current lack of standardization Greater performance risk Higher transaction costs Cannot build capacity Cannot aggregate
- 19. ICP Energy Performance Protocols BASELINING • Existing Building • Drawings • Weather File • Energy Usage • Energy Rates • Occupancy SAVINGS • Model File • Calibration Data • Bid Packages • Certifications COMMISSION • Cx Plan • Cx Authority • Test Procedures • Facilities Req. OPERATIONS • BMS Points • Fault Plan • Maintenance Plan MEASUREME • M&V Model • Regression Model • Adjustments • Impact • Baseline Adjustments C x
- 20. ICP Protocol development process Organize market leaders to provide input into the development of the protocols – Financiers – Building owners – Developers, installers, ESCOs – Government agencies – Utilities
- 21. ICP North American Protocols Large Commercial Standard Commercial Targeted Commercial Large Residential Standard Residential Targeted Residential
- 22. Third Party Verification [to follow soon] Contractor, Software and QA Accreditation
- 23. Investor Ready Energy Efficiency
- 24. ICP Europe – initial focus In-country advocates UK Germany Austria Bulgaria Portugal
- 25. ICP Europe Steering Group
- 26. ICP Europe Network Members
- 27. 20172016 Investor Confidence Project Europe CREATE TOOLS Protocols Accreditation Labels Open data TAKE TOOLS TO MARKET Private investors Public programmes Developers Property owners Utilities BE A CATALYST FOR CHANGE Inspire action Connect projects to capital Create working examples 2015
- 29. EE is so boring • Large yawn Energy efficiency is so……boring
- 30. Supply system benefits - Power supply - T&D capacity - Environmental - Losses & reserves - Risk - Credit & collection Participant benefits - Productivity - Quality - O&M costs - Health impacts - Employee productivity - Lower absenteeism Society benefits - Air quality - Water - Solid waste - Energy security - Economic development - Health
- 31. Examples of co-benefits • Removing constraints on production expansion (Costa Coffee) • Increased retail sales (M&S) • Reduced need for operator intervention (Worsley Alumina) • Increased throughput (Metalexacto) • Reduced corrosion inhibitor & reduced corrosion (Danish liquid gases company) • 39% reduction in days lost at work (New Zealand) • Office productivity (Springfield, OR utility)
- 32. Capacity building demand side • ISO50001 • Value co-benefits • Integrated design • Consider outsourced energy services – Bring expertise and finance – Can accelerate deployment
- 33. Development gap
- 34. The gap between potential and bankable projects
- 35. Mind the development gap • Overcoming the development gap requires: – Vision – Skills – Finance – Standards • Need to develop multi-building projects to achieve scale
- 37. Traditional EPC / ESCO is not the answer • Usually on balance sheet • Debt constrained by mortgage covenant or structure • Guarantee is not a credit enhancement • Transaction costs • Tenant-landlord split incentive • May work well in public sector but not in commercial property sector
- 38. Innovation is appearing • Efficiency Services Agreement (ESA) • Managed Energy Services Agreement (MESA) • Measured Energy Efficiency Transaction (MEETS) We need more innovation
- 40. Capacity building – supply side • Start with finance • Develop projects at scale • Innovate offerings • Understand the markets better • Sell co-benefits
- 42. Capacity building - financial • Standardisation • Training on: – Multiple benefits – Technologies – Contract types – Standards – Available support e.g. EC, EIB, national programmes
- 44. You can cut the jigsaw pieces precisely to make them fit better but if you don’t have all the pieces you can’t finish the puzzle WORK ON ALL THE PIECES
- 45. Policy considerations • Reward all the value streams • Design energy market to value the benefits • Consider cross Ministry benefits e.g. health • Ensure supply-demand decisions are balanced e.g. network operator regulation • Phased move away from top-down programmes to creating markets for efficiency • Stable policies
- 46. ICP – The future The future
- 48. • Strong demand by owners and investors • Highly skilled and accredited workforce • A mix of financing products at attractive rates • Standardized tools for tracking and quantifying savings • Active secondary market A healthy European energy efficiency market would have:
- 49. Energy financing - now Standardized Mainstream Large volume Multiple sources Standardized Mainstream Large volume Multiple sources NOT standardized NOT mainstream SMALL volume FEW sources
- 50. Energy financing – the future Standardized Mainstream Large volume Multiple sources Standardized Mainstream Large volume Multiple sources Standardized Mainstream Large volume Multiple sources
- 51. Contact www.eeperformance.org/europe steven.fawkes@energyproltd.com www.onlyelevenpercent.com @DrSteveFawkes +44 77 0223 1995 © Steven Fawkes 2014
Editor's Notes
- Barriers to investment in energy efficiency
- We need to increase investor confidence in energy efficiency Lots of big institutional investors want to invest but they need more confidence
- Skip the appraisal introduction and QA for now. Concentrate on “investment ready” as a designation and what that means to the market
- Skip the appraisal introduction and QA for now. Concentrate on “investment ready” as a designation and what that means to the market
- ICPEU Consortium members (UK, Portugal, Germany, Austria, Bulgaria)
- ----- Meeting Notes (1/29/15 17:38) ----- Agora
- So we have seen EE has huge potential for profit and many other benefits BUT EE is so boring!!!!!!
- And of course there is the layer cake of benefits – it is not just about the value of energy savings – there are so many co-benefits including improved productivity, improved employee retention and so on.
- Our building performance models are on the whole, pretty terrrible. In California residential model 50% out 25% of the time. Not good. This is a major elephant in the room. Some good work going on eg Sefaira’s modelling
- Thanks to Jan for asking me back to EcoSummit to talk again about the magic of energy efficiency.