This article is part of our special report An efficient energy union.
SPECIAL REPORT / Private investment in energy-efficient buildings renovation must increase five-fold by 2030, according to a group set up by the European Commission and the United Nations Environment Programme (UNEP) Finance Initiative.
The Energy Efficiency Financial Institutions Group (EEFIG) called for a “historic level of public-private collaboration” to bridge the funding gap for energy savings projects.
The EEFIG is a platform involving the financial sector, EU policymakers, the International Energy Agency and other business and efficiency experts.
The lack of public and private money for buildings, industry and SMEs, meant that EU countries risked missing efficiency targets for 2020 and beyond, the group’s report, Energy Efficiency – the first fuel for the EU Economy, said.
Regulation setting the levels of capital financial institutions like banks must hold against risk should correctly reflect the lower risk of long-term efficiency investments, it recommended.
The European Commission has signalled it may be willing to look at risk calibrations in the Capital Requirements Directive for banks, to encourage lending and investment. The comments were made in the context of safer securitisation instruments championed in the Commission proposal for Capital Markets Union.
New prudential regulation, such as the Solvency II capital law for insurers, should not prejudice those investments either, the report said.
How to include energy efficiency and energy costs in mortgage affordability calculations should also be investigated, to expand the green mortgage market, it continued. Common standards and procedures for both debt and equity investment in energy efficiency and building renovation projects should also be developed.
The EU has committed to cut its energy consumption by 20% by the end of the decade. The European Commission had called for an efficiency goal of 30% by 2030. That was reduced to 27% across the EU.
The EU level target is not legally binding at the national level or EU level and will be reviewed in 2020 “having in mind” a 30% EU-level target, according to the deal struck by EU leaders at a summit last October.
“Only half of the estimated €60 – 100 billion annual investment required to achieve Europe’s 2020 energy efficiency targets in buildings is being met,” said Achim Steiner, under secretary-general of the UN and UNEP executive director.
Bolstering energy efficiency is one of the dimensions of the Energy Union project, designed to strengthen the bloc’s resilience to shortages. The project was given political impetus by the Ukraine Crisis, which exposed the EU’s dependence on Russian gas imports.
Launched on 25 February, the Commission’s Energy Union communication stressed the importance of saving energy in buildings. Meeting Europe’s full efficiency potential would cut gas imports by 40% over the next fifteen years, according to Commission analysis.
But experts are divided on whether the Energy Union proposals are strong enough to drive forward efficiency measures, and in particular the renovation of existing buildings, which is the most challenging.
>> Read: Energy Union stutters on efficiency
The EEFIG report, which took 16 months to write, said that energy efficiency investment is the most cost effective manner to reduce reliance on imports. The EU spends over €400 billion a year on imports.
Energy efficiency should be viewed as “the first fuel”. “It is competitive, cost-effective to produce, widely available and delIvers multiple benefits to project hosts and national economies,” the report said.
The multiple benefits include better energy security, greenhouse gas reduction, job creation, and health.
EEFIG rapporteur Peter Sweatman said the report made a strong case for using public funds blended with private sector investment to achieve the scale of financing needed.
Smart financial instruments were needed, according to the report, and have to be tailored by sector to encourage reduction of energy use.
The Commission has already moved to trial two such blended instruments, the Private Finance for Energy Efficiency and Natural Capital Financing Facility. They combine European Investment Bank loans with financing under the EU LIFE Programme for Environment and Climate Action to encourage and leverage private sector investment.
At the launch, Climate Action and Energy Commissioner Miguel Cañete said Energy Union would be built on public guarantees for private investment across the five pillars of the planned Energy Union – energy security, renewables, energy efficiency, internal energy market, and research and innovation.
Maroš Šef?ovi?, the Vice-President in charge of Energy Union, confirmed the Commission would develop new financial instruments to promote the retrofitting of buildings with the European Investment Bank and other financial institutions.
“We will try with this double approach. Better regulation, but at same time financial incentives for starting what I hope will become a European movement for efficiency in our buildings,” he said after last week’s meeting of EU energy ministers.
The Smart Financing for Smart Buildings initiative will also increase access to existing financial instruments for efficiency, he said.
The Juncker investment plan is the highest profile example of this blended approach. It will use €21 billion of public money to leverage at least €315 billion in private investment, according to the Commission.
The EEFIG called for energy efficiency projects to be given priority in the deployment of Juncker plan money. But, on Wednesday (11 March), Jyrki Katainen, the Commission Vice-President in charge of the €315 billion investment package, said the private sector would choose which projects to invest in.
They would be the projects that got funding, he said.