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Second Learning Event. Summary of presentations
The need to set up innovative financing schemes at regional or national level to create the conditions for adequate supply of private finance for energy efficiency investments.
Mr. Martins Zemitis,
European Commission Representation
Key messages and learning
Mr. Martins Zemitis started his update describing the need to set up innovative financing schemes at regional or national level to create the conditions for adequate supply of private finance for energy efficiency investments. The EU “fit for 55” package is one of the mechanisms to deliver transformational change needed in a fair, cost-efficient and competitive way to meet climate changing goals by 2050.
The policy framework describes EPC as mechanism for increasing the uptake of energy efficiency projects. A major advantage of this mechanism is its capacity to mobilize the private sector to provide finance, performance guarantees and share risks. EPC are also suitable and relevant for the renovation of public lighting. Increased potential could develop in the use of EPC for renovating district heating systems, the adoption of renewables, and for the smartification of infrastructures. Moreover, this commitment is the key because the public sector plays an exemplary role in the development of building renovation and energy efficiency markets and in the adoption of sustainable support mechanisms for the private sector to improve the energy performance in this sector.
Financing framework addresses the wide range of the EU funding programs to support energy efficiency: 1) to directly co-finance investments (Recovery and Resilient Facility, Cohesion Policy Funds (ERDF, ESF) and Just Transition Fund and Modernization Fund); 2) to mobilize and leverage investments (Financial instruments and technical assistance under InvestEU EIB including the ELENA Facility); 3) to support technology development, research & innovation (Horizon Europe and Innovation Fund); 4) to address market barriers and provide capacity building (LIFE and specifically: the Clean Energy Transition sub-program).
Stronger provisions on the removal of obstacles and barriers to renovation, and on the mobilisation of financial incentives with one-stop-shops accessible to all building ecosystem’s stakeholders, so that all barriers to building renovation, not only the costs, are addressed and Member States promote appropriate training. Higher financial incentives and technical support measures are directed to deep renovation projects and those targeting a sizeable number of buildings and leading to considerable overall energy savings. Although the concept of ‘deep renovation’ has not yet been defined in the legislation, it should be defined as a renovation that transforms buildings into zero-emission buildings. First step to this goal is the renovation that transforms buildings into nearly zero-energy buildings. This definition serves the purpose of increasing the energy performance of buildings.
What’s the learning and follow-up prospects
- Political commitment and designating EPC to coordinate and push the process
- Need for a financing mechanism allowing forfaiting/refinancing of EPC
- Combination of EPC with EU grants for comprehensive renovation while remaining off-balance
Current RoundBaltic findings in Latvia and government outlook regarding private EPC involvement in financing energy efficiency
Mr. Raimonds Svanks, Latvian Environmental Investment Fund,
Key messages and learning
Mr. Raimonds Svanks pointed out that in Latvia RoundBaltic acts as organizer, coordinator and facilitator of productive interaction between the EE practitioners and policymakers in order to minimize the obstacles and find alternative financial sources to create new financial instruments. This can be best achieved by gathering stakeholders in a dynamic forum and stimulating their constant and continuous further cooperation. One of the main problem is that available EU and public funds alone will not be sufficient to cover the investments necessary to reach the energy and climate objectives in 2030 and 2050. One of the possible solutions is to present a framework for attraction of private financing. EPC is a form of financing for capital improvement which allows funding energy upgrades from cost reductions. At the same time Member States should continue supporting the public sector in the uptake of energy performance contracting by providing model contracts that take into account the available European or international standards.
On the European level the campaign has been launched to promote and build capacity for EPC and ESCO. The aim of the campaign is to enable country-specific discussion and capacity building of the core stakeholders, which should enable better understanding of the business model, its challenges and opportunities, increase confidence regarding its reliability and effectiveness, and help Member States in establishing a legal and financial framework for the market with energy services
Latvia needs to be more active in supporting the ESCO system and overcome the problem that the public sector has no experience in preparing and implementing ESCO procurement and no guidelines are available for preparing ESCO projects and organizing procurement. Given the lack of experience in the public sector in the preparation and implementation of ESCO procurement, it is necessary to develop guidelines for the preparation of public sector ESCO projects and the organization of procurement as well as to ensure that local governments and public authorities can make long-term commitments (up to 20 years) if an ESCO project is implemented.
What’s the learning and follow-up prospects
- EPC requires some challenges in approval process for every single ESCO contract to be undertaken by public sector
- It is important to master EU grant money and consider ESCO services only after this option has been used up
- Current Latvia’s energy efficiency target (improve energy efficiency in 3% buildings per year) is met
- Current human capacity and skill level to undertake the implementation and control of active ESCO market can be changed by highest level political decision on what is important for economy and fiscal space of Latvia in the next 10-year period
EPC in public buildings and the Lithuanian experience.
Mr. Rolandas Marcinkevicius, ViPa, Lithuania
Key messages and learning
Mr. Rolandas Marcinkevicius said that the main problem on EPC in public buildings is that public institutions are reluctant to borrow grants, because there are challenges to achieve real savings (economic viability) on the one hand and high cost of deep renovation on the other hand. Another aspect is the need for additional subsidies in modernization projects, especially in cultural heritage buildings. Sometimes there is lack energy data available about public buildings, as well as poor maintenance.
Some measures have been already made to make this process more appealing. Facilitation and promotion of financial instruments includes appointing of centralized public real estate manager, improving building ownerships related obligation system and discussion and promotion of ESCO model at the state level. Standardizations and simplification of a process using ELENA support is also a key element in achieving positive results on EPC in public buildings.
Analyzing EPC situation status in Lithuania it is important to increase documentation quality to avoid implementation delays and decrease costs and also the need for further improvement of EPC procedures and documentation. Additional aspects that can be done are to increase expertise in municipalities to be able to prepare complex projects and lower grant element increases chance of EPC interest. Demonstrating added value over regular procurement can also help to involve ESCOs’ at earlier stages. The importance to see the big picture can involve early consultation with stakeholders, consistent and transparent political support, facilitation and promotion as well as simplification and standardization of financial instruments. All that must result in good planning and offering clear milestones and steps to achieve them.
What’s the learning and follow-up prospects
- Integrated planning and monitoring
- Availability of financing
- Effective and timely communication
- Application of one-stop-shop approach
Renovation with EPC Plus savings guarantee, the scope of the program and first observations.
Mr. Wojciech Stańczyk, The Polish National Energy Conservation Agency (KAPE S.A.)
Key messages and learning
Mr. Wojciech Stańczyk started by stressing out the initial idea to create financial instrument that will support the deep renovation of the buildings through the use of EPC contract. The idea is to establish long term fund that will purchase the receivables from ESCOs and allow them to engage in new projects without freezing their assets. There is a need for additional element to be integrated in this scope – the need to be more competitive to current available models for financing the renovation processes. As for beneficiaries – the program was offered to local authorities, housing cooperatives, housing associations and companies owned by local authorities.
Creation of standardized EPC contract that is used within the project helps to lower costs. The program as such is split in two phases (currently it is pilot phase), but it is already turning into main phase with available budget ten time more than in pilot phase. Current focus is on multifamily buildings but as the program evolves focus will also include not only multifamily buildings but there is interest in public buildings. Offered subsidy is in range from 10% to 30% depending on the scope of the renovation and savings achieved. Some additional elements of the program include minimal value of the investment; inclusion of the energy management system as mandatory; up to 20% of the investment value can cover non-Energy measures and all buildings need to reach a dedicated standard of efficiency.
The application process consists of pre-application to clarify to which standard to apply for, later after simplified calculator of the investment are made and there is a guarantee of subsidy the important part of choosing the ESCO can come into place. That includes audit by ESCO and evaluation of optimal scope and costs. Later one year after implementation there is a monitoring to be sure that the project meets all the standards. Despite the transparent and clear application process the main barriers ad challenges are the increasing costs of energy; ambition of building owners and available funding programs; lack of understanding of the EPC and complexity of the contract; technical condition of the building and poor quality of energy audits.
Presentation of how BNP Paribas helps finance energy renovation of buildings in Poland
Mr Adam Hirny
Director of the Office for Sustainable Development Programme
Key messages and learning
BNP Paribas Bank Poland has taken initiative to improve its capabilities in energy efficiency finance. Via a grant from the EU ELENA Facility it has built a concept of integrated home renovation services to reach out to multi-family buildings (housing associations) in Poland as part of the initiative Energy Efficiency Finance Facility for Residential Buildings/EEFFRB. The housing associations often have limited awareness concerning possible EE savings and EEFFRB help them getting aware of the potential benefits and to prepare the energy audit and investment plan that are required to succeed with energy renovation of the buildings. Thetype of investments to be supported comprise comprehensive energy refurbishment like thermal isulation of the building envelope as well as integration of renevable energy sources like solar PV installations into the buildings.
The ELENA grant has allowed BNP Paribas Bank to increase its internal capacity, incl. energy experts to operate in all regions of Poland. It has also allowed to build an external capacity in form of a team of energy engineers to provide support to housing associations like energy audits and complex technical design documentation.
The financial scheme consists of dedicated investment loans for the housing associations in combination with a grant support from the Polish Development Bank/BGK (grant up to 21% of the investment). To this has been added a risk sharing instrument/PF4EE, an instrument provided by EIB and the European Commision under the Programme for Environment and Climate Action (LIFE Programme) that imply supplementary benefits for the housing associations in form of reduced requirements for own contribution and decreased cost of funding.
The level of energy renovations under EEFFRB has seen a steady growth since its start in 2019 despite COVID-19 lock-down, though the pendemic has affected its dynamics. Mr. Hirny showed a case study where a multifamily building with 100 apartments and 269 inhabitants had installed energy renovation measures like roof isolation, exchange of windows and thermal isulation of the building envelope. It is expected that the facility will help mobilising minimum 800 projects worth 78 MEUR until September 2022 that correspond to annual total CO2 emission reductions of 47 900 t CO2 eq. The expertises gained by BNP Paribas Bank will enable it to further expand green financing after EEFFRB expires.
What’s the learning and follow-up prospects
RoundBaltic draws the following observations:
- First of all, it is interesting to see the merits when a bank gets directly engaged in energy renovations of buildings in the sense that it both upgrades the bank internally to deal with these type of investments as well as involving internal staff on the core energy aspects. In this connection the ELENA Programme has proved its value to support such development.
- As part of the follow-up it can be explored how BNP Paribas Bank established a national network of in-house and external experts and what can be learned from that process. There can also be made an assessment of the risk sharing instrument PF4EE and its impact in terms of helping through the investments.
- The proactive approach of BNP Paribas Bank with setting up and running EEFFRB is an example worth following. Of the 92 participants in the learning event were 37 from the financial sector who were introduced to the example. Through its interventions RoundBaltic aims to inspire banks to get entrepreneurs or in other ways get actively engaged in energy renovations of buildings
Tools for energy performance of building certificates from a financial perspective
Cláudia Monteiro, ADENE, representing the H2020 X-tendo project
Key messages and learning
X-Tendo intends to develop a toolbox with 10 functionalities for updating the next generation of energy performance certificates, to provide public authorities with compliance, reliability, usability and convergence in the assessment and certification of energy performance of next generation buildings.
Cláudia Monteiro presented the tool of X-tendo on methodology in terms of financing options, encompassing learning from previous cases, how to link energy performance of building certificates (EPC) to financing as well as how to communicate the financial aspects. IFRRU 2020 is a financial instrument operating in Portugal designed to support investments in building renovations all around the country. The associated financial products are loans with maturities of up to 20 years and low interest rates as well as guarantees where required. Cláudia explained the flow of activity among actors in the IFFRU 2020.
The presentation also came around how X-tendo builds modules to fit EPC into operations of one-stop-shops. In Portugal is running the one-stop-shop initiative casA+ that provide information about public funding and calls/applications and where financing institutions have access to owner needs & contacts and can promote their financial products within energy efficiency and rehabilitation. Casper Thielsen from the Danish Energy Agency supplemented with information on the Danish public subsidy programme. The sub-program for all residential buildings support measures like insulation, windows and doors, conversion to heat pump and building operation and where the application is to be based on EPC data.
What’s the learning and follow-up prospects
RoundBaltic draws the following observations:
- As said in the take-away EPC data is key to evaluate needs, support application process and monitor financing programs. Moreover, linking the buildings performance and “traditional” renovation is a win-win situation due to the role of the EPC. This is in accordance with the experiences under RoundBaltic, where we had sessions on how to motivate the houseowners and where is required more incentives than the energy savings alone.
- One-stop-shop can serve aggregator of energy renovations by addressing both owner and financing institutions’ needs, namely helping promoting green financing (e.g. access to information, close the gap between demand and supply, etc.). The tools developed under X-tendo can be used in the efforts of establishing one-stop-shop under RoundBaltic and in other fora.
Session for the Banking associations - the Danish, Polish and Latvian bank associations give a pitch on their key activities to support green funding
Ms. Sandie Wrona, Economic Consultant, Finance Denmark
Key messages and learning
Ms. Sandie Wrona from Finance Denmark said that in 2020 the Danish financial sector’s contribution to the green transition passed the EUR 60 bn mark, aiming at EUR 90 bn in 2030. Finance Denmark has taken a range of initiatives in recent years to support the development, as reviewed in its Sustainability Report 2020. One initiative has been the establishment of a Forum for Sustainable Finance. This Forum published 20 recommendations, incl. intensifying efforts to develop and offer loans that incentivise homeowners and business property owners to improve energy efficiency in their properties.
Danish homeowners overestimate the energy performance of their houses, meaning there is needed more awareness, where the financial sector plays an important role. In 2020 Finance Denmark launched a home energy renovation campaign with the Danish Energy Agency under the slogan ”Build it better – renovate for the climate”. This was linked with developing a series of tools to be used by financial advisers when engaging in dialogue with customers on energy improvements and capacity building of financial advisers.
Mr. Boleslaw Meluch, Expert, Polish Bank Association
Key messages and learning
Mr. Boleslaw Meluch from the Polish Bank Association said the Polish Bank Association, on behalf of the banking community, officially joined the Partnership for the implementation of the Sustainable Development Goals. The banking sector sees the goals of sustainable development as an opportunity to create a new economic reality, opening new development paths for business, including banks, based on the principles of transparency and building the image of Poland as a reliable economic partner.
The Polish Bank Association has declared its interest to participate in the Green Investments Plan (GIP). GIP is a package of programs for the development of clean heat, energy, water, transport and innovation in the energy sector and energy efficiency that also require the mobilization of private funds and capital from financial markets. Hence, the involvement of the banking sector in Poland is a key success factor for both the Green Investments Plan and the horizontal transformation process of the Polish economy. One component of the GIP is the Clean Air Program system that provide support to sustainable energy housing and where the Polish Bank Association work together with 30 public and private institutions.
Moreover, the Polish Bank Association represents the banking sector in consultative bodies for the distribution of EU funds or co-financing of clients’ EU projects for low-carbon purposes. Banks will be able to participate in the new programs as systemic financial intermediaries or co-financing projects commercially. This includes the Private Finance for Energy Efficiency (PF4EE) instrument as implemented from the LIFE Program by BNP Paribas Bank Polska SA (cf. presentation of Mr. Hirny).
Mr. Jānis Ozoliņš, Sustainable Finance working group, Finance Latvia Association
Key messages and learning
Mr. Jānis Ozoliņš from the Finance Latvia Association started by stressing the importance of sustainable finance due to the investment needs in the public and private sector and a market in growth, but with need for further stimulation.
The Finance Latvia Association follows a 15-point plan to promote green financing 2021-2022. One group of actions concern lending, incl. launching of new products to finance the green transition and enhancement of state aid programmes. Another group is about development of capital markets, incl. enabling regulations and guidelines for broader investments of pension fund assets. A third group concerns financial literacy that comprises the creation of a sustainable financing platform in cooperation with the Financial and Capital Market Commission. A fourth group has the heading of sustainable finance and comprises actions like a coordinated public and private sector policy for assessing sustainability.
Finance Latvia Association has, together with the Financial and Capital Market Commission, the Bank of Latvia, Nasdaq Riga, the Latvian Leasing Association and the Latvian Insurers Association, agreed to collaborate to promote public understanding of the meaning and principles behind sustainability and sustainable finances, as well as to promote the implementation of this in business and daily life. This entails the establishment of a sustainability financing platform to support the process.
What’s the learning and follow-up prospects for the 3 presentations:
RoundBaltic draws the following observations:
- The presentations of the bank associations in Denmark, Poland and Latvia shows the transition the financial sector is undergoing towards sustainable finance. All three associations have made clear commitments on how to lead the respective financial sectors in that direction.
- Part of these commitments – the ones associated with the building and SME sector – match the objectives of the RoundBaltic project and hence the intention is to interact with a view to transform the intentions into real actions on the ground. Good examples of this are where Finance Denmark aim to promote home energy renovations, where the Polish Bank Association support sustainable energy housing and where the Finance Latvia Association aim to strengthen the sustainability financing framework.