Keynote speech at the EU Sustainable Energy Week (EUSEW), Brussels. Session: An investment framework for energy efficiency: The way forward
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Good morning ladies and gentleman, thank you Marie for the warm welcome. It is a pleasure to be here today during this year's EU Sustainable Energy Week.
In the Commission, we have had a busy few months with the launch of the Energy Union Strategy, but I am delighted by our steady progress and I am particularly pleased that this year's Sustainable Energy Week represents our strategic goals of placing consumers in the centre; putting energy efficiency first; and using cooperation and collaboration as the main working method. On Tuesday, you heard from Commissioner Arias Cañete how we established and promote ''energy efficiency first'' as a fundamental principle of the Energy Union and with it the moderation of demand. This is why we have invited Member States to give energy efficiency primary consideration in their policies and to consider energy efficiency as an energy source in its own right.
We are progressing towards reaching our 2020 energy efficiency goals and with continued determination reach our 2030 objective of 27% of energy efficiency savings well in advance of 2030.To reach objectives the EU has put in place the world's leading regulatory framework that includes: the Energy Efficiency Directive, the Energy Performance of Buildings Directive, and products legislation through the energy labelling and eco-design measures.
But for this legislation to work, these rules have to be properly set up, transposed, implemented and enforced on the ground. We are committed to their revision and adaptation so that they deliver on our objectives. In addition, policy initiatives and goals have to be backed by available financing. But despite all of our progress and efforts, current levels of investment in energy efficiency are too low in relation to our policy objectives.
Estimates suggest that around €100 billion is needed to be invested annually in the EU to achieve our energy efficiency target for 2020. Yet, current investments are below half of these requirements and five times lower than required to deliver 200 decarbonisation targets. To ensure larger volumes of energy efficiency investments, it is necessary to address the key drivers of supply and demand of energy efficiency financing.
How do we both encourage borrowing and support lending for energy efficiency?
In addressing this issue, I would like to commend the invaluable contribution by Energy Efficiency Financial Institutions Group (established by the UN Environmental Programme and the European Commission) whose more than hundred experts help us better understand how to trigger long-term private financing for energy efficiency projects across Europe. So we look forward to today's presentation by Peter Sweatman and the following discussion with you (the audience) about their conclusions.
The recommendations from their reportwill help boost the demand for and supply of energy efficiency investments through a strong regulatory framework with readily available financing. These include: improvement of public procurement rules, standardisation of financing procedures (simplifying the process), establishment of a common investment "language", for example through standardised protocols (easier replication of projects on a large scale) or better performance monitoring.
The question of supply of financing - Where will the money come from? The answer is both public and private sector. Meeting with a mayor in Hungary during Energy Union Tour: investment in energy efficiency of local cultural centre: 30% grant from EU, 70% loan from investors to the municipality which pays back the loan with the money saved on energy.
Regardless of how efficient our policies will be, public funds will not be enough! Thus, our goal is to use our own resources in the best possible way to boost private energy efficiency investments by developing robust investment schemes and providing project development assistance. These schemes have to be large enough to benefit from economies of scale yet flexible enough to adapt to the diverse needs of European cities and regions. As their adoption depends on us, European citizens, we will ensure that they are consumer and user friendly.
One of our public sector financing sources is the Cohesion Policy. The Cohesion Policy budget includes EUR 38 billion for low-carbon economy out of which EUR 16 to 18 billion is allocated to energy efficiency projects in public, residential, and industrial buildings. In France, for instance, the regions will spend 470 million EUR from the European Regional Development Fund to improve the thermal performance of their social housing stock. This money will leverage investment of over 3 billion EUR, it will contribute to the creation of 42000 local jobs and it will reduce the energy bills of 150000 households with modest incomes.
We strongly encourage the usage of the Cohesion Policy funding through financial instruments. Loan, guarantee or equity instruments should be the first choice of EU financial support where projects generate revenue or significant cost savings. Grants may be used as a complement to support where needed, for example, in deep renovations of buildings going beyondlegal minimum energy performance requirements, to help develop innovative technologies or to address social issues, in particular energy poverty.
We want to complement and encourage private investment, leverage it and not crowd it out.
Only through cooperation with the private sector can we achieve the volume and range of financing products that we need to reach our 2020 and 2030 energy efficiency objectives. I met with large pension and investment funds interested in climate-friendly long-term investment. So let's provide them and all others with the right framework and decrease their perceived risk of investing in energy efficiency across Europe!
There are already two EU financial instruments specifically targeting energy efficiency projects: the European Energy Efficiency Fund (EEEF) managed by Deutsche Bank which invests directly into projects and the Private Finance for Energy Efficiency (PF4EE), which combines lending from the EIB to financial intermediaries with protection against losses associated with their energy efficiency lending activities.
Even more support will be available under the newly formed European Fund for Strategic Investments (EFSI) that will unlock public and private investments in the real economy of EUR 315 billion over the next three years through leveraging and risk mitigation. The fund itself is going to reduce certain risk factors of energy efficiency projects to ensure that a significant part of the Investment Plan will target investments in EE.
The EFSI, Cohesion Fund, European Energy Efficiency Fund, and Private Finance for Energy Efficiency will provide enough supply of financing, but the challenge arises on the demand side given the characteristics of generally small scale energy efficiency projects. We intend to improve demand for financing through aggregation and project development assistance!Therefore, we work closely with the European Investment Bank and national promotional banks to make sure that suitable aggregation mechanisms will be in place to address the needs of dispersed, smaller energy efficiency investments. We want to link up European cities and regions with similar needs so thatthey can all benefit from economies of scale, save money on project development, and provide enough of a demand for financing. In this regard, it will be important to ensure that we build on the knowledge of national markets and support the development of new instruments or up-scaling those that have performed well.
Another challenge comes in the form of project development. I meet local politicians and investors who tell me that they don’t have the human resources to develop a good project, apply for funding, and follow through with it. For EFSI, the Investment Advisory Hub will play a crucial role in providing for clear navigation and marketing of existing funds and technical assistance facilities for project promoters and public authorities. It will also address the gaps in market capacity, in particular regarding structure and operation of Financial Instruments. We want the Investment Advisory Hub to be the one-stop shop that will simplify the whole process and spur investment.
For other projects, we will continue to drive demand for sustainable energy investments by providing Project Development Assistance facilities such as the ELENA Facility. Over the past 5 years, our funding of around EUR 100 million has constituted a pipeline of around 95 projects leading to EUR 4.8 billion of investments. As an example, our funding has helped the region Picardie in France develop a new public service to assist homeowners in the energy renovation of their homes. This one-stop-shop service includes customised technical support, an integrated pre-funding solution and project execution assistance. The experimental phase should lead to the renovation of 2.000 homes over three years. While bundling small-size projects at the regional level, these schemes are also good candidate to benefit from funding under the EU investment plan.
By encouraging demand for and facilitating supply of financing, the Commission will also continue, under the "Smart financing for smart buildings" Initiative, to address the market fundamentals of the building sector. Our aim is to establish a solid project database, track the financial performance of energy efficiency investments, work out the methods for better understanding and pricing of associated risks and, if possible, to establish a common language among market participants (e.g. through a Voluntary Agreement with investors and financiers).
With buildings being responsible for 36% of energy consumption and 75% of our housing stock energy inefficient, this is an obvious and high impact sector for energy efficiency measures. We look forward to presenting you with specifics in 2016. Accelerating sustainable energy investments will require efforts at all levels, from individual consumers to local project promoters and global capital markets. And we will support all these actors through policy frameworks which provide real added value.
I would like to leave you here today with one of my favourite quotes: "the Stone Age did not end because we ran out of stones, but because we transitioned to better solutions." And the same opportunity lies before us with energy efficiency. So I am pleased that you decided to attend the EU Sustainable Energy Week and I look forward to working with all of you to transition to better and more efficient solutions.
I wish you a fruitful discussion and thank you for your attention.