Financing energy efficiency

Financing energy efficiency

The EU has increased the amount of public funds available for energy efficiency, but there is a need to boost private energy efficiency investments through the targeted use of public funds, the development of robust investment solutions, and support activities for project developers.

In the Communication published on 30 November 2016 as part of the 'Clean Energy for All Europeans' package of proposals, the Commission treats buildings as an essential part of Europe's clean energy transition and its financing. In particular, the 'Smart Finance for Smart Buildings' initiative, in the Annex to this Communication, is dedicated to accelerating clean energy in buildings.

More effective use of public funds

Public support is available for sustainable energy investments. From 2014-2020, European Structural and Investment Funds (ESIF) will allocate €18 billion to energy efficiency, €6 billion to renewable energy - notably in buildings and district heating and cooling – and around €1 billion to smart distribution grids.

Boosting investment in sustainable energy projects is also one of the strategic priorities of European Fund for Strategic Investments (EFSI). The vast majority of energy projects approved for financing cover energy efficiency and the renewable energy sector.

However, since energy efficiency investments are generally made in private properties, public funds should not provide the majority of support - the energy efficiency market must mature and become fully investible, and subsidies should be better targeted towards vulnerable consumers or specific market failures.

Public money can be used to reduce the cost of capital, provide loans with longer maturities, or lower collateral requirements. To move towards this more efficient use of public funds, the Commission and EU countries are developing innovative business and financial instruments to leverage private finance with public funding.

The EU has developed a number of support schemes and funding programmes aiming to help businesses, regions, and countries successfully implement energy efficiency projects.

The European Commission plans to hold Sustainable Energy Investment Forums across the EU to boost cooperation between public and private stakeholders in the financing of the energy efficiency sector.

Creating project pipelines

Many project promoters – cities, individuals, businesses – need assistance to take their energy efficiency projects from idea to implementation. The European Commission aims to guide projects through the financing process and to encourage the development of regional or local one-stop-shops covering the whole customer journey.

The European Commission has set up different Project Development Assistance (PDA) facilities to help project promoters:

  • ELENA - managed by the European Investment Bank - supports both private and public project promoters such as local and regional authorities to develop and launch large-scale bankable sustainable energy investments (above €30 million), including in the area of sustainable transport. ELENA covers up to 90% of costs for project development.
  • PDA H2020 helps public and private project promoters develop exemplary sustainable energy projects, focusing on small and medium-sized energy investments of at least €7.5 million to €50 million and covering up to 100% of eligible costs.

Minimising the risks of investment

Under current market conditions, investors are not easily attracted by energy efficiency. Banks often make loan agreements based on the credit status of their clients or the property value – the benefits of energy efficiency improvements are not taken into account.

The European Commission, in collaboration with the Energy Efficiency Financial Institutions Group (#EEFIG), is developing two initiatives that aim to change these practices and inform financial institutions, investors and project promoters about the real benefits of energy efficiency investments.

The De-risking Energy Efficiency Platform (DEEP) - DEEP is the largest pan-EU open-source database containing detailed information and analysis of over 7,000 industrial and buildings related energy efficiency projects. DEEP will help project developers, financiers, and investors better assess the risks and benefits of energy efficiency investments across Europe. The European Commission encourages all market players to support this initiative by sharing their data and performance track records.

The Commission, together with the financial community, is also working on ways to help financiers, investors and project promoters to better evaluate the real risks and benefits of energy efficiency investments. This will help reduce transaction costs and increase investor confidence.

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