Building European Investor Confidence for Energy Efficiency Investment

Hopes are high for the success of the Investor Confidence Project Europe, a new EU funded project designed to increase private investment in energy efficiency. The aim: to accelerate the development of a global energy efficiency market by standardizing how energy efficiency projects are developed and energy savings are calculated. Addressing the new European team in Amsterdam, Panama Bartholomy, Director of ICP Europe, said: “This is audacious. It’s market transformation we’re going for”.

Raising the standard

Convened by the UNEP FI and the European Commission, the high-powered Energy Efficiency Financial Institutions Group (EEFIG) surveyed more than 200 individuals from over 100 organizations, including Deutsche Bank, ING, Allianz, BNP Paribas, to identify the major drivers of energy efficiency finance supply and demand. They identified standardization as the top driver for both supply and demand of finance, an issue at the heart of ICP’s efforts.

Five years ago, the Environmental Defense Fund originated the Investor Confidence Project to assemble existing standards and practices into a consistent process for building energy renovation. The project trains developers to meet these standards and become credentialed project developers. The result is a label “Investor Ready Energy Efficiency” for investment projects that show investors they can trust in the promised efficiency savings.

And it seems that already the ICP Protocols are gaining traction in the U.S. with inclusions on several federal programs (California, New York, Texas) and rumours than a major financial institution is soon to incorporate the protocols into its energy efficiency lending program.   

The first group of U.S. based ICP credentialed companies includes HVAC, energy services and building companies, among them Johnson Controls, Trane, Pepco Energy Services, Swinerton Builders, SCI Energy, Association for Energy Affordability, HT Lyons, Environmental Building Strategies, TRC, L & S Energy Services and Performance Systems Development.

“This is a really big deal. These companies are trendsetters in energy services,” said Matt Golden, director of the Investor Confidence Project. “These companies represent all types — HVAC, energy efficiency, and builders.”

 “Everyone agrees that in order for energy efficiency to get to scale, we need to standardize across all sectors. We need to make this more cookie cutter.”

Fragmented markets

Europe, however, is anything but ‘cookie cutter’ and somewhat resistant to standardization. The European Union member states represent 28 different markets, each with their own set of building regulations and traditions. Can the process of building renovation be sufficiently standardized across these fragmented markets?

ICP Europe will tackle five countries to start with – UK, Portugal, Germany, Bulgaria and Austria. With a €1.92 million grant from the European Commission’s flagship research and innovation funding programme Horizon 2020, the ICP Europe consortium will develop ICP’s project protocols for the European market, work with financial institutions to embed them into their financing process and take the protocols to markets in those countries.

Getting down to business

In 2012, global energy efficiency investments across all sectors totalled $310 billion representing a very significant and growing market opportunity for investors and businesses. The International Energy Agency, in its 450 Scenario (policies having about 50 % chance of limiting global increase in temperature to 2⁰C) , sees the EU as needing to invest a further $1.3 trillion in energy efficiency in buildings from 2014-2035 and $154 billion in energy efficiency in industry – almost doubling current investment trends.

Leading financial institutions are increasingly aware of the opportunities. According to Urs Rohner, Chairman of Credit Suisse Group AG, “Our research demonstrated that Europe can probably save another 10 to 15% of energy by 2030 with appropriate energy efficiency measures with no negative impact on economic growth. We therefore believe that more efficient energy will have double benefits, to Europe’s environmental and economic growth targets.”

However, high level officials from the UNEP Finance Initiative and the European Commission agreed that availability of finance was not the ‘triggering factor’ for energy efficiency investment, and that both supply and demand in the energy efficiency market must be developed. The question is: how?

Michael Eckhart, managing director and global head of finance and sustainability at Citigroup, recently laid out the challenge in the Clean Energy Finance Forum, saying,

“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.”

• For more information on ICP Europe, including how to take part in developing protocols and other tools, visit www.EEperformance.org/europe
• Learn more about Horizon 2020 funding for innovative financing of sustainable energy

Photo Credit: Energy Efficiency Adoption/shutterstock