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SFEI Energy Investment Day. EPEC and Energy Efficiency. Stuart Broom 26 November 2012, Bratislava. EPEC: Who we are and what we do. The European PPP Expertise Centre. Established in September 2008;

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EPEC and Energy Efficiency

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    1. SFEI Energy Investment Day EPEC and Energy Efficiency Stuart Broom26 November 2012, Bratislava

    2. EPEC: Who we are and what we do EPEC and Energy Efficiency

    3. The European PPP Expertise Centre • Established in September 2008; • A unique cooperative initiative of the EIB, the European Commission and EU Candidate and Member States; • International team of 18 professionals; • Membership: Initially 20, EPEC now numbers 35 Members; • Excellent engagement from Members with more than 120 participations annually in EPEC working groups EPEC and Energy Efficiency

    4. EPEC Mission To help the public sector deliver more, and better, PPP deals EPEC’s activities: EPEC works by: • Collaborative Working – Information sharing through member working groups; • Institutional Strengthening – Policy and programme support through bilateral working with member organisations; • Helpdesk– Service offered to members providing rapid responses to enquiries • Sharing information, experience and expertise; • Strengthening the organizational capacity of public authorities to develop PPP programmes; • Promoting good practice across the public sector EPEC and Energy Efficiency

    5. Why EPEC? Clear public sector need for private sector knowledge and expertise Why now? Energy Efficiency is key part of EU 2020 strategy; The Energy Efficiency Directive recently approved imposes energy saving obligations on Member States; The Cohesion Policy proposals for 2014 -2020 allocate a significant amount of funding to Energy Efficiency and Renewable Energy; ELENA, JESSICA, EEEF to support investment in Energy Efficiency/Renewable Energy EPEC and Energy Efficiency EPEC and Energy Efficiency

    6. Energy Efficiency (EE) Mandate • EU Legislation and financing framework related to Energy Efficiency (EE) and Renewable Energy (RE) in buildings; • Structural and Cohesion Funds available for investment in EE and RE; • Energy Performance Contracting (EPC) Raising awareness within national authorities on: EPEC and Energy Efficiency

    7. Energy Efficiency (EE) Mandate EPEC and Energy Efficiency

    8. Energy Performance Contracting (EPC) Campaign • Launched by DG ENER in October 2012; • Awareness of EPC at national, regional and local levels; • Series of practical workshops to increase knowledge, build confidence and share experience; • Three pillars working to complement each other: EPEC, ManagEnergy and Covenant of Mayors EPEC and Energy Efficiency

    9. EPC Campaign Structure EPEC and Energy Efficiency

    10. Energy Performance Contracting (EPC) EPEC and Energy Efficiency

    11. Energy Performance Contracting (EPC) and Energy Service Companies (ESCOs) Energy services include energy analysis and audits, energy management, project design and implementation, maintenance and operation, monitoring and evaluation of savings, property management, and energy and equipment supply • Private sector expertise to design, implement EE investments and optimised operation • Building owner get access to outside capital for projects by transferring the risk to the ESCO • Guaranteed/ Shared savings based on actual EE performance, reduced operating costs • Immediate benefits: upgrade with modern, reliable EE equipment; comfort conditions; reduced carbon emissions • ESCOs can provide turnkey solutions and comprehensive measures (deep retrofits) • Potential for off balance sheet financing on commercial basis (factoring/forfeiting) EPEC and Energy Efficiency

    12. The EPC Opportunity Source: International performance, measurement and verification protocol, EVO, 2010 EPEC and Energy Efficiency

    13. Comparative perspective - European ESCO market (2010) Estimated EU market size at €6.7-8.5bn / potential up to €25bn Data source: Energy Services Companies Market in Europe. Status Report 2010– DG Joint Research Centre EPEC and Energy Efficiency

    14. Current EU Issues EPEC and Energy Efficiency

    15. Energy Efficiency Directive (EED) A new regulatory framework that provides an opportunity to develop the EPC market: • Article 3 – Required renovation of 3% of central government buildings • Article 7 – Energy efficiency obligations 1.5% target for energy companies to be met • Article 8 – Obligation for large companies to carry out mandatory energy audits • Article 19 – Removal of barriers to energy efficiency in accounting rules • Article 20 – Maximising the benefits of multiple financing schemes EPEC and Energy Efficiency

    16. Timetable for implementation • April 2013: Member states present their national programmes for the implementation of the Energy Efficiency Directive; • 2014, 2016: European Commission reviews the Directive EPEC and Energy Efficiency

    17. CohesionPolicy Proposals2014 -2020 • Cohesion Policy provides the major EU level investment framework for EE/RES, accompanying the EU regulatory framework; • The ERDF, CF and EAFRD can contribute to accelerating the implementation of EU legislation on renewable energy and energy efficiency, in particular the Energy Performance of Buildings Directive, the Energy Services Directive, the Renewable Energy Directive and the Strategic Energy Technology Plan EPEC and Energy Efficiency

    18. Cohesion Policy 2014 - 2020 • Adoption of Commission proposal in October 2011 • Negotiations ongoing in the Council • Mission: • Reduce disparities between Europe's regions strengthening economic, social and territorial cohesion; • Contribute to the Europe 2020 Strategy for smart, sustainable and inclusive growth; • Need to increase the performance and impact of the funds: • Ex-ante conditionalities; • Thematic concentration of funds: 11 thematic objectives linked to the Europe 2020 Strategy EPEC and Energy Efficiency

    19. Promoting the production and distribution of RES; Promoting EE and RES use in SMEs; Supporting EE and RES use in public infrastructures and in the housing sector; Developing smart distribution systems at low voltage levels; Promoting low-carbon strategies for urban areas. Cohesion Policy 2014 – 2020: Investments in Sustainable Energy Supporting the shift towards a low-carbon economy in all sectors – 5 investment priorities proposed: EPEC and Energy Efficiency

    20. Key actions for Investment • Innovative renewable energy technologies, in particular technologies mentioned in the SET-Plan and in the Energy Roadmap 2050, along with 2nd and 3rd generation biofuels; • Supporting marine-based renewable energy production, including tidal and wave energy; • Investment in the wider use of Energy Performance Contracting in the public buildings and housing sectors; • Energy efficiency and renewable heating and cooling in public buildings, in particular demonstration of zero-emission and positive-energy buildings, and deep renovation of existing buildings to beyond cost-optimal levels • EE and RES in SMEs, including information campaigns; • Integratedlow-carbonstrategies and sustainableenergyaction plans for urban areas, including public lightingsystems and smart grids; EPEC and Energy Efficiency

    21. Whatwill be available? EPEC and Energy Efficiency

    22. CohesionFundsPrinciples • Mainly private sector investment. MS/regions to ensure that public funding complements private investment, leveraging it and not crowding it out; • In EE sector, consider option of creating value for energy savings through market mechanisms before public funding (ESCOS); • Financial instruments to be used where potential for private revenue or cost savings is large; • For physical investment, grants to be used primarily: • to address market failures; • to support innovative technologies; • to support investments beyond cost-optimal EE performance: ensure energy savings and GHG emission reductions above "business as usual"! EPEC and Energy Efficiency

    23. Instruments Available EPEC and Energy Efficiency

    24. ELENA EPEC and Energy Efficiency

    25. ELENA at a glance EPEC and Energy Efficiency

    26. Eligibility - investments The prior identification of an investment programme is a prerequisite for submission of an ELENA application EPEC and Energy Efficiency

    27. Eligibility – entities and activities EPEC and Energy Efficiency

    28. Examples • Province of Milan • Context- the Province is a supporting structure under the Covenant of mayors • Objective - assistance for small or medium-sized municipalities in the refurbishment of public buildings • Investment scale: ELENA contribution: EUR 1,95 m / expected investment: EUR 90 m • Support provided under ELENA • Setting up a support unit • Procedure selection for implementation of investments, via ESCO’s, building lots • Preparation of calls for tender and negotiations with bidders • State of advancement - tender under EPC for ESCOs published for 100 schools • Other supported projects • Cities:Paris, Greater London Authority, Villa Nova de Gaia • Provinces and municipalities : Milan, Chieti; Barcelona, Modena (part of program) EPEC and Energy Efficiency

    29. JESSICA EPEC and Energy Efficiency

    30. JESSICA at a glance JESSICA: JointEuropeanSupport forSustainableInvestmentinCityAreas Objective: invest Structural Funds in a revolving way to urban projects, including EE • Initiative of the EC (DG REGIO) launched in 2006 together with EIB and CEB to establish a common approach for financing urban development and strengthening the urban dimension in cohesion policy through repayable assistance • Investments in sustainable urban transformation (brownfields/city regeneration, renewable energy, energy efficiency, clusters’ development, transport, tourism/public service infrastructure) Overall JESSICA objectives Use of innovative financial instruments allowing for the reutilization of resources invested in the urban sector • To increase Structural Funds’ efficiency and productivity • To increase leverage • To exploit new partnerships and synergies Mobilize public/private resources for investments in projects being part of an integrated urban development scheme Use of managerial, financial and implementation competencies of the private sector and IFIs such as EIB EPEC and Energy Efficiency

    31. The structure of JESSICA EUROPEAN COMMISSION Structural Funds OTHER INVESTORS (Public & Private) OTHER INVESTORS (Public & Private) MEMBER STATE Via a designated Managing Authority MEMBER STATE Via a designated Managing Authority CITIES optional Holding Fund (HF) Holding Fund (HF) URBAN DEVELOPMENT FUND (UDF) IFIs/Public Agencies/ Banks Investment (equity, loan or guarantee) Projects forming part of an Integrated Plan for Sustainable Urban Development EPEC and Energy Efficiency

    32. JESSICA: EU state of play and EIB role within • EIB role in JESSICA: • Acting as a Holding Fund (HF) manager on behalf of Managing Authorities (i.e. managing OP contributions, arranging selection/establishment/investments into UDFs etc.) • Advising and assisting national, regional and local authorities in JESSICA implementation (e.g. Evaluation studies, Technical Assistance services) • Promoting the use of UDFs and best practice across Europe • State of play of existing JESSICA mandates: • EUR 1.9 bn of Structural Funds committed to 23 operations in 11 Member States • 18 (out of 19) HFs are managed by EIB (EUR 1.8bn) under which 37 UDFs created so far; • Several projects financed by UDFs “on the ground” • Energy efficiency UDFs established in London and Lithuania; energy focused HFestablished in Spain; energy components constitute also part of traditional UDFs elsewhere 1 1 5 2 3 5 5 7 2 1 2 1 2 1 3 3 6 2 2 1 5 37 HFs managed by EIB 18 UDFs set up under EIB-managed HFs 1 HF set up with national FIs EPEC and Energy Efficiency 4 UDFs established directly without HF

    33. JESSICA energy projects: Possible types and added value JESSICA has: Financial resources and products, structure and experience in working with urban/city areas to provide energy solutions for sustainable urban development Network to share information and best practice experiences Close relationship with other EIB initiatives, e.g. ELENA and JASPERS • Renewable Energy • Solar, biomass, wind Clean Transport • Electric vehicles, including automobiles, motorcycles and bicycles • Fleet management (improvement of energy efficiency) • Energy Efficiency, Co-generation and Energy Management • Renovation or extension of existing district heating or cooling networks; high-efficiency combined heat and power • Energy savings/energy efficiency in buildings EPEC and Energy Efficiency

    34. Example : JESSICA scheme in Lithuania Ministries of Finance and Environmentcontribution of EUR 227m fromOperational Programme: «Promotion of Cohesion 2007-2013» Investment Committee JESSICA Holding Fund managed by EIB Contingentloans Urban Development Fund Lithuanian banks: Housingand Urban Development Agency Technical assistance Modernisation Loans Repayments BORROWERS: Individual owners of apartments in multi-apartment buildings / administrators of commonly used premises of multi-apartment buildings PROJECTS: Eligible energy efficiency projects in multi-apartment buildings EPEC and Energy Efficiency

    35. Example : JESSICA HF London (London Green Fund): Greater London Authority £ 18 m £32m £50m London Green Fund £100m Managed by EIB In procurement phase £35m £50m £12m £400m loan for high energy efficiency new build and retrofit of existing social housing (expected to be signed in Dec 2012) Greener housing UDF Waste UDF Energy Efficiency UDF Private finance Equity type investment Loan type investment Urban Projects in Greater London area and forming part of the London Plan Lowrisk/low return High risk/high return • Aiming to deliver outputs/impacts of job creation, carbonreduction, and energy usage savings EPEC and Energy Efficiency

    36. EEEF EPEC and Energy Efficiency

    37. EEEF at a glance • Stands for European Energy Efficiency Fund • EEE F is dedicated to mitigatingclimate change through market-based financing in the EU Member States • Its aim is to support all EU Member States to achieve the ambitious EU climate targets (20/20/20) • How: Financing Energy Efficiency (EE) and Renewable Energy (RE) projects in the public sector at the local level • Beneficiaries: Municipalities, local or regional authorities; public and private entities acting on their behalf (i.e. utilities, public transportation providers, social housing associations) • What: Investment in EE (70%), RE (20%), Clean Urban Transport (10%) EPEC and Energy Efficiency

    38. Structure of the Fund • Initial capital of euro 265 M • European Commission: 125 M • European Investment Bank: 75 M • CassaDepositi e Prestiti: 60 M • Deutsche Bank: 5 M • Target size: euro 500/600 M • Form: SICAV, investment in forms of loans, guarantees or equity. Bankable projects. No grants. EPEC and Energy Efficiency

    39. Eligible Investment • Energy Efficiency (EE) and Renewable Energy (RE) • Buildings • CHP (including micro-cogeneration) and district heating/cooling, in particular from RE sources, with full usage of ICT • Street-lighting, electricity storage solutions, smart meters, smart grids • Decentralized energy sources and their integration in local grids • Energy storage • Clean Urban Transport • EE/RE technologies, with an emphasis on electric and hydrogen vehicles EPEC and Energy Efficiency

    40. Advantages of EEEF compared to other market instruments • Innovative financing according to needs: junior loan, convertible debt, equity participation, tailor-made senior loan (longer duration or grace periods), EPC as collateral to secure a loan, forfeiting scheme. Fund can also operate as sole investor • Long maturity: flexible, up to 20 years for debt • Technical Assistance (TA): euro 20 M in total grant for project development phase, up to 90% of eligible costs. Linked with EEEF funding. Based on ELENA model. • Fast & flexible procedures : no more than 6 months from pre-screening until financing EPEC and Energy Efficiency

    41. Eligibility Criteria • Municipal link • Public authorities should have concrete objectives to mitigate climate change • At least 20 % primary energy savings for EE projects (higher for buildings, increase of 2 categories) • Min. 20 % reduction of CO2 equiv. for RE and transport • Compliance with EU legislation (RE directive, CHP…) • Only proven technologies (and specific criteria for technology may apply) • Size: 5-25 M€, case-by-case basis • Strong support for ESCOs providing guaranteed energy savings • Eligibility check available on EEEF website : EPEC and Energy Efficiency

    42. Case Study: Jewish Museum Berlin Project Description EPEC and Energy Efficiency

    43. Case Study: Jewish Museum Berlin Financing Structure EEEF (Purchaser) 2. Forfaiting agreement: purchase of 70% of receivables/energy savings (limited recourse) 4. Forwards sold part of the receivables/energy savings to EEEF 3. Pays receivable with savings ESCO (Seller) JMB (Employer) 1. Implementation of EE measures according to the Energy Performance Contract (EPC) Source: EEEF Savings Guarantee EPEC and Energy Efficiency

    44. Case Study: Jewish Museum Berlin Investment Characteristics • Key data: • Financing volume: approx. €1.7 m • Duration of financing: 10 years • Quarterly interest and principal payments • Highlights: • Pilot project with the forfeiting structure • Attractive investment instrument to support advanced projects • Winner of European Energy Service Initiative’s Award EPEC and Energy Efficiency

    45. Stuart Broom Telephone: +352 4379 86835 European PPP Expertise Centre Twitter: EpecNews Telephone: +352 4379 22022 Fax: +352 4379 65499 EPEC and Energy Efficiency