Financing of the German Energy Turnaround

Bank aus Verantwortung

Financing of the German Energy TurnaroundBSPC-Working Group on „Green Growth and Energy Efficiency“

Berlin, 12th of October 2012

Olaf Weber, KfW

2German Energy Turnaround / 12/10/12

Covered issues

1 A brief view on KfW

2 Huge investment needs for the German energy turnaround

3Which sources are available to finance the German energy turnaround?

4 Good practise in promoting energy efficiency by KfW

5 Lessons learnt


KfW: more than 60 years promotional bank of the Federal Republic of Germany

› Shareholders: 80% Federal Republic 0f Germany, 20% all federal states

› Founded in 1948

› Headquarters: Frankfurt am Main

› Branches: Berlin, Bonn and Cologne

› Representative offices: around 70 offices and representations worldwide

› Balance sheet total at end 2011: EUR 494.8 billion

› Financing volume 2011: EUR 70.4 billion

› Around 4,763 employees (2011)

› Best rating: AAA/Aaa/AAA

› Global Finance Magazine: KfW in 2012

„Safest Bank of the World“


House – bank - principle in Germany No branch network of our own

File loan applicationwith their regular bank

before start of investment

Enter into the loan agreement and

disburse the loan

If approved, customer‘sbank forwards

application to KfW

Refinances the loan at favourable refinancing

interest rates

Customer'sbank

Customer


A bank with a wide array of functions

We promote development

Promotion of developing and

transition countries

International business

We promote Germany

Promotion construction

of new housing and modernisation

as well as education

Promotion SMEs, as well as

renewables, energy efficiency, innovation

Promotion of municipal projects

Domestic promotion

We ensure internationalisation

International project and

export finance

Promotion of environmental and climate protection

Business area Mittelstandsbank

Business area Privatkundenbank

Business area Kommunalbank

Business area Export and Project

Finance

Business area Promotion of

Developing and Transition Countries


•Promoting sustainable projects

Particular support is given to projects which make a positive contribution to sustainability goals. Co-financing is only provided for projects whose impacts on the environment and social conditions are manageable.

•Investing money sustainably

Own funds and investments are responsibly invested under sustainability aspects.

• Sustainable business operations

High standards and goals for environmental protection in our own buildings; remaining emissions rendered CO2 neutral through compensation projects in developing countries.

http://nachhaltigkeit.kfw.de/

Bank aus Verantwortung How is KfW translating responsible banking ?

http://images.google.de/imgres?imgurl=http://www.nationaler-radverkehrsplan.de/praxisbeispiele/images/2031_01-klein.gif&imgrefurl=http://www.nationaler-radverkehrsplan.de/praxisbeispiele/anzeige.phtml%3Fid%3D2031&h=180&w=205&sz=3&hl=de&start=16&tbnid=sOmCh4mb0oxoeM:&tbnh=92&tbnw=105&prev=/images%3Fq%3Dbike%2Band%2Bbusiness%26gbv%3D2%26hl%3Dde%26sa%3DX


The German Energy TurnaroundAmbitious challenges ahead

Annual investment required in Germany

until 2020:

at least EUR 27 bn.


Priority to Renewable Energies

● Increasing the share of renewables in gross final energy consumption up to 60 % (2010: 11 %)

● Increasing the share of renewables in the gross electricity consumption up to 80 % (2010: 17 %)

● Massive uncoordinated expansion of solar and wind energy generation; delays offshore

● Additional fossil power plants for reserve capacity

● EU-ETS with week incentive effects

● Securing supply of „critical raw materials“

● Participation of affected citizens and municipalities

● EUR 135 bn. until 2020INVESTMENTS

CHALLENGES

GOALS


Urgently Needed:Power Grids and Storage Capacity

● Integration of renewable energy into existing power generation infrastructure

● Innovation in storage technologies and smart grids

● Massive expansion of grids (under stress) and storage capacities (scarce)

● Provision of sufficient long-term financial funds required to avoid a slowdown in investment

● Promotion of research & development, promotion and rapid approval of best practice projects

● Securing supply of „critical raw materials“ ● Acceleration of planning- and approval procedures● Participation of affected citizens and municipalities

● Up to EUR 90 bn. until 2030INVESTMENTS

CHALLENGES

GOALS


Inevitable but neglected: Fostering Energy Efficiency

● Reduction of primary energy consumption by 50% ● Reduction of electricity consumption by 25%● Increasing energy productivity by 2.1% p.a.

● Almost 100% decarbonisation of production, consumption and mobility required:

● Financial incentives ● Information and consulting for households and

companies.● Waking up the sleeping giant by fostering energy

efficiency in the building and heat sector● Adjustment of energy demand through extended

usage of smart metering

● Up to EUR 23 bn. until 2020 (for reduced electricity consumption and increased use of renewables for heat production)

INVESTMENTS

CHALLENGES

GOALS


Composition of electricity price for German households

24

33

2,7

19,5

0,26,5

13,7

Concession levy for localauthorities

CHP contribution

Renewable electricitycontribution

Electricity tax/VAT

Grid levy

Operating meter / measurement/ accounting

Generation and distribution

K


Sources to finance the energy turnaround IElectricity tariffs

› German industry pays the second highest electricity tariffs among the „industrialized“ states in Europe with 6-12 ct/kWh

› Due to intensive competition no further state induced increase of taxes or contributions for the energy turnaround is possible

› Quite the contrary: there are a lot of exemptions to energy taxes for energy intensive companies

Industry

› Consume only a quarter of the whole electricity consumption

› Energy taxes and contributions raised at 126% since 1998, while costs for generation, transport and distribution decreased at 9%

› Yellow press: „Does the Energiewende impowerish us?“

› Average tariff now 25 ct/kWh

Households

› The strategy to let pay mainly private households and companies with a relativly low electricity demand for the energy turnaround isn´t further overall accepted; e.g. actual increase of the contribution for renewable electricity which will rise from 3.6 ct/kWh to 5,3 ct/kWh next year

› On the other hand high elictricity prices are an incentive to save energy and vice versa


Sources to finance the energy turnaround IIFederal budget

› To stabilize the EURO it is absolutly necessary to reduce debt in the federal budget. Nevertheless there is still a large stream of state money e.g. for R&D. Although the above mentioned exemptions or reductions of taxes or contributions are state aid.

Break on debt

› To increase the transparency of state expenditure for the energy turnaround the government established an energy and Climate Funds. The fund should obtain its money from selling certificates for emission rights in the framework of the European Emission Trade System. Yearly funds-revenues should raise from 2.18 bn € in 2013 to 2.6 bn € in 2016.

Energy and climate Funds (EKF)

› There is a certain over-lapping. The German electricity tax is already a component of the electricity price, even VAT.

› EKF calculates with an average certificate price of 10 €/t CO2-emission in 2013. The current carbon market pays only 7 €/t.

› State aid must be conform to EU competition law.

› One state intervention results in another.


Sources to finance the energy turnaround III KfW

Triple-A-Rating of KfW bonds

KfW reduces interest rates by ist own earnings additionally

› KfW's rating results mainly from the very good credit quality and the explicit, direct guarantee of the Federal Republic of Germany. Thus securities from KfW are just as safe as German government bonds Our clients profit from KfW´s extraordinary favourable funding („Flight to quality“).

› Particulary in our energy efficiency programmes we offer „signal interest rates“ up from 1%


KfW action plan „Energiewende“

› Construction of new energy-efficient homes and the energy-efficient refurbishment of older residential buildings

› Energy efficiency in corperates

› Municipal efficient energy supply, energy-efficient urban lighting, energy-efficient refurbishment of municipal non-residential buildings, integrated energy neighbourhood concepts and refurbishment manager

Boosting already existing programmes

› KfW Programme Offshore Wind Energy for the establishment of 10 wind farms off the German North and Baltic Sea coasts

› KfW Energy Turnaround Financing Initiative. Direct loans for large commercial German and foreign enterprises and large-scale investment projects in the areas of energy efficiency, innovative projects in the areas of energy saving, energy generation, storage and transmission as well as the use of renewable energies.

Creating new programmes


Initiative: Energy efficiency in SMEs

Federal Department of Commerceand KfW

Loans at low interest rates

Grants for advice


Grants for advice on energy efficiency

Detailed adviceInitial advice

60% grant

Up to 1.600 EURconsulting fee

Preciseenergy saving

concept

80% grant

Up to 8.000 EUR consulting fee

Searching energy saving potentials

Application through local partners (e.g. chambers of commerce or energie agencies)


KfW energy efficiency programm for private corperates / contractors and free lancers

Energy efficient modernisation of the production system

incl. ancillary units

Energy efficient cogeneration of heat and power

Energy efficient construction and rehabilitation

of commercial buildings

Planning and professional supervision

by technical expertsImplementation of an

energy management system

Brownfield investments: energy savings must be

at least 20% compared to the

average consumption of the last three years

Greenfield investmentsenergy savings of no less than

15% required compared to the average of

the respective industry


Terms of KfW energy efficiency programm

Financing up to100% of costs

Risk adjusted interest rates

Backed by normal banking securities

Grace period up to 3 yearsFixed interest rates and

loan durationup to 20 years

Up to 25 mn EURcredit amount

Our current offer for a duration and a fixed interest rate of 5 Years:

starting with 1 % effective yield p.a.


EU-directive on energy efficiencyReduction target

› The conclusions of the European Council of 4 February 2011 emphasised that the 2020 20 % energy efficiency target as agreed by the June 2010 European Council, which is presently not on track, must be delivered. Projections made in 2007 showed a primary energy consumption in 2020 of 1842 Mtoe. A 20 % reduction results in 1474 Mtoe in 2020, i.e. a reduction of 368 Mtoe as compared to projections.(Preliminary note, No. 2)

› Each Member State shall set an indicative national energy efficiency target, based on either primary or final energy consumption, primary or final energy savings, or energy intensity. Member States shall notify those targets to the Commission in accordance with Article 24(1) and Annex XIV Part 1. When doing so, they shall also express those targets in terms of an absolute level of primary energy consumption and final energy consumption in 2020 and shall explain how, and on the basis of which data, this has been calculated. (Article 3, Energy efficiency targets, No.1)

EnergyConsumption(kWh)

Consumptionlevel beforethe project

Consumptionlevel beforethe project

Absolute savings

Specific savings

Production(units or EUR)

Trendline 1: Situationbefore project

Trendline 2: Situationafter project

Absolute and specific energy savings


Example supermarketKfW - energy efficiency programm

Supermarket:

Modernisation of heating, air conditioning, cooling system und control technique

Investment: 390.000 EUR

Requirement for KfW-eligible brownfield investments:

20 % energy saving compared to the average consumption of the last three years

Confirmed energy savings by the energy adviser:

• 389 MWh respectively 33%

• avoided CO2: 78 t /a

Confirmed energy savings by the energy adviser:

• 389 MWh respectively 33%

• avoided CO2: 78 t /a


KfW as a trendsetter: „KfW-Effizienzhaus“

›Energy standards are laid out in the Energy Conservation Ordinance (Energiesparverordnung/EnEV).

›The label „efficient KfW-home“ refers to this Energy Conservation Ordinance

›„KfW Effizienzhaus 85“ means that the building will consume 15% less energy than this ordinance demands

›Higher incentives for achieving higher energy standards (1% interest rate in general, but different repayment boni up to 12,5 %

Energetic refurbishment is a crucial component of the German energy concept

› roundabout 39 Mio. flats still need to be energetically renovated,

hereof 24 Mio. in a comprehensive way

› The average efficiency of these buildings is three times worser

than the recent standard for new buildings

KfW-promotion of energetic refurbishment in residential buildings

KfW-EH 40

Refurbishment

KfW-EH 100KfW-EH

115KfW-EH

70KfW-EH

85KfW-EH

55 KfW-EH

Denkmal

New building

EnEV: 100


KfW’s contribution in 2011 to energy saving, jobs, the national budget and climate protection

Example: KfW programmes for

“Energy efficient construction and rehabilitation“

1 EUR of public money triggering 12 EUR

in private investments(1,5 to 18,3 bn €)

Reducing GHG

emissions

by 0.6 m tCO2

› Extrapolated energy savings over the average useful lifetime of the buildings promoted in 2011 are 1.550 GWh

› Discounted present value of energy savings of the buildings promoted in 2011 is about 4,165 bn €

› Evaluated by IWU, Darmstadt, and BEI, Bremen

Direct tax return flow=2,9 bn €

Securing 246,900 jobsfor one year


Technical know how complements our financal know how

•KfW disposes of own technical experts in the field of energy

• the Federal Republic of Germany and KfW once founded the German Energy Agency (dena)

•dena provides technical and related economic know how to the German public

•KfW also takes a share in the Berliner Energieagentur, one of more than 30 regional energy agencies in Germany. Please have a look to the Energy saving partnership in Berlin:

http://www.berliner-e-agentur.de/en/projects/energy-saving-partnerships-berlin


How to conduct successfully an energy turnaround? Some key factors from the perspective of a promotional bank

Stakeholders lack technical and economic information which e.g. energy agencies can provide

Energy turnaround needs mainly long term investments thus there is a necessity to provide favourable long-term financing

Target groups need tailor made promotion

Give absolute priority to energy efficiency and R&D (no regret policy)

Standards facilitate orientation

Try to measure the output of activities (EU-Directive)


Further Information about KfW-promotion of renewable energies and contact data

Olaf Weber KfW Bankengruppe

Director Palmengartenstraße 5–9

KfW Bankengruppe 60325 Frankfurt am Main

Germany

Fon +49 69 7431 7398

Fax +49 69 7431 3582

[email protected]

http://www.kfw.de

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Contact

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Financing of the German Energy Turnaround