Investor confidence to meet Europe’s energy efficiency challenge

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Energy efficient buildings bring increased energy security, better air quality, reduced fuel poverty and job creation. [Dave Dugdale/Flickr]

The European Commission puts the size of the investment required for building energy efficiency retrofits at around €100 billion per year. This is a significant opportunity for investors and businesses, writes Panama Bartholomy.

Panama Bartholomy is the director of ICP Europe.

Two years ago, the United Nations Environment Program and the European Commission convened the Energy Efficiency Financial Institutions Group (EEFIG) to look at the barriers to energy efficiency investment. EEFIG counts heavy hitters such as BNP Paribas, Deutsche Bank, ING, KfW, Société Générale, the EIB, and EBRD among its members.

A leading conclusion from the EEFIG is the necessity to build investor confidence in energy efficiency. And how? Through the “launch of an EU-wide initiative to develop a common set of procedures and standards for energy efficiency and buildings refurbishment underwriting for both debt and equity investments” according to the report.  

“Given that energy efficiency contributes 49% of global greenhouse gas emissions reduction, boosting investor confidence at this stage is critical,” said EEFIG rapporteur Peter Sweatman.

The EEFIG report sends a clear message to the energy efficiency community.  Never before have so many large and small, public and private investors come together to find ways to access the financing needed to meet Europe’s building renovation goals. The consensus is crystal clear: the lack of a standardised process for developing and underwriting projects is the biggest barrier to confidence in the industry.

Building Confidence

Five years ago, the NGO Environmental Defense Fund originated the Investor Confidence Project to contribute to market development for energy efficiency renovation projects by streamlining transactions and increasing the reliability of projected energy savings. The intention is to build a marketplace for standardised energy efficiency projects. The idea is that individual projects can then be aggregated and traded by institutional investors on secondary markets – just like mortgages or other profitable asset-backed securities. Until now, limited actuarial-quality project data and industry fragmentation have discouraged investors from putting their cash into energy efficiency.

The ICP system is also gaining significant traction in the United States with state and local energy efficiency programs and individual building efficiency projects. For example, the Building Owners and Managers Association (BOMA) International recently announced the relaunch of its BOMA Energy Performance Toolkit based on the ICP standards.

Investor Confidence Project (ICP) Europe launched earlier this year, backed by €1.92 million from the European Commission’s Horizon 2020 programme. ICP Europe released its first draft protocols on 14 September. The protocols are the first component of the ICP System which standardises how energy efficiency projects are developed and measured, aligned to create the data necessary to enable underwriting and managing of energy performance risk. The protocols are open-source and can be used by anybody in the market at no cost.

Speaking at Horizon 2020 Energy Info Day last Monday, Paul Hodson, head of unit for energy efficiency at the European Commission’s DG Energy quoted Günther Oettinger as saying that energy efficiency is “a Sunday morning philosophy” – meaning more preached that practiced. Marie Donnelly, director for energy transition (DG Energy) once said that energy efficiency is like motherhood and apple pie – everyone thinks it’s a good idea but no one agrees on what’s best.  

Now there is a clear consensus from the EEFIG on what’s best – or most needed – to tackle the energy efficiency challenge. With the release of the first protocols, ICP Europe is on the way to making investment in energy efficiency an indispensable part of every institutional investor’s portfolio – the key to unlocking massive scale investment in Europe’s building stock. In 2012, global energy efficiency investments across all sectors totalled $310 billion. Following the money of this scale is what will make energy efficiency ‘the new black’.