SFEI Energy Investment Day EPEC and Energy Efficiency

SFEI Energy Investment Day EPEC and Energy Efficiency Stuart Broom 26 November 2012, Bratislava

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

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 3

EPEC Mission To help the public sector deliver more, and better, PPP deals EPEC’s activities: • 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 EPEC and Energy Efficiency EPEC works by: • Sharing information, experience and expertise; • Strengthening the organizational capacity of public authorities to develop PPP programmes; • Promoting good practice across the public sector 4

EPEC and Energy Efficiency 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 5

Energy Efficiency (EE) Mandate Raising awareness within national authorities on: • 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) EPEC and Energy Efficiency 6

Energy Efficiency (EE) Mandate Materials: guidance and fact-sheets • EE in public buildings • Street-lighting • Cohesion Policy 2014 2020 • ESCOs and EPC • Information about ELENA, JESSICA, EEEF EPEC and Energy Efficiency Events • Workshops • Round tables • Seminars • Conferences Knowledge-sharing • Dedicated website http: //www. eib. org/e pec/ee • Case-study database • Cooperation with key EE stakeholders, e. g. SF Energy Invest 7

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, Manag. Energy and Covenant of Mayors EPEC and Energy Efficiency 8

EPC Campaign Structure National Regional EPEC Manag. Energy Local Covenant of Mayors • Series of events planned for 2014 – 2020; • 42 Events planned for 2012 – 2014; • Webinars planned for 2012 -2014; • Targeting key policymakers at national level; • Targeting regional authorities and energy agencies; • Capacity building events for local stakeholders; • Focus on EPC implementations, practical examples of EPC benefits, use of Cohesion Policy Funds EPEC and Energy Efficiency • Focus on forthcoming changes to regulatory framework and potential replications of EPC projects; • Focus on barriers encountered/solutions and practical ways to rollout more EPC projects locally 9

Energy Performance Contracting (EPC) EPEC and Energy Efficiency 10

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) Industry Public buildings EPEC and Energy Efficiency Commercial buildings Residential buildings Streetlighting Heating 11

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

Comparative perspective European ESCO market (2010) Estimated EU market size at € 6. 7 -8. 5 bn / potential up to € 25 bn Czech Republic Finland Bulgaria Denmark Slovakia Austria Poland Portugal Romania Sweden Spain Italy UK Germany France 2 -4 4 6 8 -25 10 -12 10 -15 10 -25 10 -30 50 60 -80 >100 387 400 0 Estimate/low estimate High estimate 1, 700 – 2, 400 1000 2000 3000 4, 000 -5, 000 4000 5000 Data source: Energy Services Companies Market in Europe. Status Report 2010– DG Joint Research Centre http: //publications. jrc. europa. eu/repository/bitstream/11111/15108/1/jrc 59863%20 real%20 final%20 esco%20 report%202010. pdf EPEC and Energy Efficiency 13

Current EU Issues EPEC and Energy Efficiency 14

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 15

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 16

Cohesion Policy Proposals 2014 -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 17

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

Cohesion Policy 2014 – 2020: Investments in Sustainable Energy Supporting the shift towards a low-carbon economy in all sectors – 5 investment priorities proposed: • 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. EPEC and Energy Efficiency │ 19

Key actions for Investment • Innovative renewable energy technologies, in particular technologies mentioned in the SET-Plan and in the Energy Roadmap 2050, along with 2 nd and 3 rd 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 costoptimal levels • EE and RES in SMEs, including information campaigns; • Integrated low-carbon strategies and sustainable energy action plans for urban areas, including public lighting systems and smart grids; EPEC and Energy Efficiency 20

What will be available? Classification of Regions for the MFF 2007 - 2013 Classification of Regions for the MFF 2014 -2020 Minimum % allocation to EE/RE Regional Competitiveness and Employment More Developed Regions (GDP per capita >90% of the EU 27 average) 20% Transition Regions (GDP per capita between 75% and 90% of EU 27 average) 20% Less Developed Regions (GDP per capita <75% EU 27 average) 6% Convergence Phasing out Regional Competitiveness and Employment Phasing in Convergence EPEC and Energy Efficiency 21

Cohesion Funds Principles • 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: ü to address market failures; ü to support innovative technologies; ü to support investments beyond cost-optimal EE performance: ensure energy savings and GHG emission reductions above "business as usual"! EPEC and Energy Efficiency 22

Instruments Available EPEC and Energy Efficiency 23

ELENA EPEC and Energy Efficiency 24

ELENA at a glance Structure ELENA stands for European Local Energy Assistance Grant facility managed by the EIB and funded by the EU budget under the Intelligent Energy Europe Programme, in operation since 01/2010 Role To assist in the transition from preparing action plans to making investments To support local and regional authorities to reach the EU 20 -20 -20 targets through technical assistance (TA) Budget For 2009 - 2011: € 49 m (allocations can be made until end 2013) Envisaged budget in 2012: € 22 m Track record 16 projects signed/approved for a total of EUR 28 million; Supported investment programs around EUR 1. 6 bn Further projects in the pipeline for EC approval EPEC and Energy Efficiency 25

Eligibility - investments • Public and private buildings, including social housing • Street lighting and traffic light systems • RE in buildings • Heating or cooling systems based on combined heat and power (CHP) production or renewables • Small CHP systems for buildings EE and RES investment in Public and Private Buildings • Goal – to Increase EE or integrate RE in urban transport • High-EE buses, including hybrids • Electrically powered or low-carbon-emission cars, related infrastructure • More energy efficient designs for goods transport logistics in urban areas Urban transport • Goal - to improve EE or use renewable energy • Smart power grids • Information and communications technologies • District Heating • Intermodal transport • Infrastructure for more energy efficient vehicles Local Energy Infrastructure The prior identification of an investment programme is a prerequisite for submission of an ELENA application EPEC and Energy Efficiency 26

Eligibility – entities and activities Eligible entities • Local and regional authorities or other public entities, or groupings of such entities, including those subscribing to the Covenant of Mayors; • All or part of the investment programme may be implemented by bodies other than the abovementioned entities, including private firms Eligible activities – ELENA covers at most 90% of the cost of TA • • Cost of additional personnel/technical staff hired by beneficiary; Energy audits; market surveys and refinement of technical/ feasibility studies; Preparation of public calls for procurement/ tendering (i. e. ESCO projects); Other TA, excluding physical investments (hardware) Conditions for the investment programmes • • Above € 50 m (smaller projects eligible when integrated into larger programmes); Must be implemented within a 3 -year timeframe; Minimum investment leverage factor of 20; 4% of the investment volume as cap for technical assistance (TA) EPEC and Energy Efficiency 27

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

JESSICA EPEC and Energy Efficiency 29

JESSICA at a glance JESSICA: Joint European Support for Sustainable Investment in City Areas 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 • To increase Structural Funds’ efficiency and productivity Use of innovative financial instruments allowing for the reutilization of resources invested in the urban sector • To increase leverage Mobilize public/private resources for investments in projects being part of an integrated urban development scheme • To exploit new partnerships and synergies EPEC and Energy Efficiency Use of managerial, financial and implementation competencies of the private sector and IFIs such as EIB 30

The structure of JESSICA EUROPEAN COMMISSION Structural Funds OTHER INVESTORS (Public & Private) CITIES MEMBER STATE Via a designated Managing Authority Holding Fund (HF) option al URBAN DEVELOPMENT FUND (UDF) Investment (equity, loan or guarantee) EPEC and Energy Efficiency IFIs/Public Agencies/ Banks Projects forming part of an Integrated Plan for Sustainable Urban Development 28

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: 1 2 3 5 1 3 2 2 • EUR 1. 9 bn of Structural Funds committed to 23 1 5 2 5 7 1 2 3 6 1 2 1 5 18 HFs managed by EIB 37 UDFs set up under EIB-managed HFs operations in 11 Member States • 18 (out of 19) HFs are managed by EIB (EUR 1. 8 bn) 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 HF established in Spain; energy components constitute also part of traditional UDFs elsewhere 1 HF set up with national FIs 4 UDFs established directly without HF EPEC and Energy Efficiency 32

JESSICA energy projects: Possible types and added value 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 • 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 EPEC and Energy Efficiency 3330

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

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

EEEF EPEC and Energy Efficiency 36

EEEF at a glance • Stands for European Energy Efficiency Fund • EEE F is dedicated to mitigating climate 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 37

Structure of the Fund • Initial capital of euro 265 M —European Commission: 125 M —European Investment Bank: 75 M —Cassa Depositi 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 38

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 39

Advantages of EEEF compared to other market instruments • Innovative financing according to needs: junior loan, convertible debt, equity participation, tailormade 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 40

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 CO 2 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 : http: //eeef. eu/eligibility-check. html EPEC and Energy Efficiency 41

Case Study: Jewish Museum Berlin Project Description Partners Jewish Museum Berlin, Johnson Controls, EEEF Measures • • Results • • Installations of innovative LEDtechnology Installation of new ventilation system Optimization of air management Heat recovery and installation of electrical expansion valves and others Reduction of CO 2 emissions 1, 812 t p. a. , approximately 55% compared to baseline Guaranteed energy savings of € 294, 327 p. a. (43. 2%) EPEC and Energy Efficiency 42

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) Savings Guarantee EPEC and Energy Efficiency Source: EEEF 43

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 44

Stuart Broom s. broom@eib. org Telephone: +352 4379 86835 European PPP Expertise Centre epec@eib. org www. eib. org/epec Twitter: Epec. News Telephone: +352 4379 22022 Fax: +352 4379 65499 EPEC and Energy Efficiency 45