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THE INVESTMENT PLAN FOR EUROPE ESCO and EPCs developments
Athens, 31 May 2018
Laurent BENDER, Financial Instruments Advisory
European Investment Bank Group
The EIB: the EU bank
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‣ Natural financing
partner for the EU institutions since 1958
‣ Around 90% of lending is within the EU
‣ Shareholders: 28 EU Member States
Investing in Europe’s growth
European Investment Bank Group
EIB products
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We help catalyse investment
LENDING BLENDING ADVISING Loans But also: Guarantees Equity participation
Combining EIB finance with EU budget and other public sources
European Fund for Strategic Investment (EFSI)
Smart Finance for Smart Buildings Initiative (SFSB)
Private Finance for Energy Efficiency (PF4EE)
Instruments combining ESIF with EIB resources
Support for projects and investments
European Investment Advisory Hub (EIAH)
Project Development Assistance (ELENA, JASPERS)
Improve access to finance (Financial Instrument Advisory, fi-compass)
Attracting FUNDING for long-term growth
European Investment Bank Group
Financial Instrument Advisory
• Supports public authorities and other stakeholders throughout life-cycle of Financial Instruments • Carrying out ex-ante assessments and market studies for ESIF financial instruments • Develops a suitable investment strategy and governance structure • Advises on the combination of FI and grants • Provides through fi-compass awareness raising and information for ESIF FI (www.fi-compass.eu)
• Supports the setting up of Investment Platforms bringing together ESIF, EFSI and other public and private resources, e.g. Smart Finance for Smart Buildings Initiative
• Prepares a Practitioners Guide for EPC accounting treatment with Eurostat
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Support for ESIF FIs and beyond
The ‘Smart Finance for Smart Buildings’ initiative
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Energy Performance Contracts are expecting to help public authorities to meet their low-carbon targets for 2020 and beyond by renovating public buildings. Therefore EPC were outlined in the "Smart Finance for Smart Buildings" initiative.
- Combining the benefits of a first loss portfolio guarantee for banks, capital grants and technical assistance to both intermediaries and final beneficiaries
- To be made possible by the Omnibus regulation (coming into force in mid-2018)
A comprehensive financial instrument providing SFSB stakeholders with a holistic solution
First Loss Piece
MS Contribution
Senior Risk Cover
EIB Group
(and potentially a NPB)
Eligible Debt Financing (consumer loans, mortgages loans, guarantees)
Guarantor
Ris
k re
tain
ed b
y Fi
nanc
ial I
nter
med
iary
Part
gua
rant
eed
by
the
EIF
Guarantee Counter-guarantee
Guarantee rate typically equal to 50%
Second Loss Piece
EFSI IIW
Technical Assistance component
(MAs and FRs)
Grant Component
(depending on the MA)
Guarantee scheme
Background information The SFSB guarantee instrument
Introduction to the Energy Performance Contracts
EPC involves specialized private sector contractors –Energy Service Companies or ESCOs - undertaking and financing energy efficiency improvements in buildings of contracting authorities, where a reduction in energy usage is usually guaranteed. Energy performance contracting offers a number of advantages for public entities: energy efficiency improvement investments are financed directly from cost
savings ESCO takes on the performance risks of the works and technology used energy and cost savings are guaranteed by the ESCO ESCO supports the long-term use of improved energy management solutions ESCO supports the public sector building owner in finding the most suitable
technical and financing solution.
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Introduction to the Energy Performance Contracts
‣ Budget-neutral approach to performing building improvements that reduce energy use while increasing operational efficiency.
‣ Enables owners to implement cost-saving projects now, without capital budgets.
‣ Projected annual savings are guaranteed to meet finance payments.
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Energy Performance Contracts versus Public Private Partnership
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EPC • Medium term
contract 3-12 years. • Refurbishement of
existing buildings • Energy savings
PPP • Long term contract 10 -25
years • New construction mainly. • Investment into the public
service delivery of any nature.
Similarities : • Involves specialized private sector contractors. • Transfer of risk from the public entity to the private
sector (Construction, Availability, Demand, Energy savings) .
EPC : Typical Measures
• Lighting equipment replacements • Building automation system upgrades • Boiler and chiller replacements • Central plant improvements • Renewable energy systems • Utility rate adjustments • Traffic and street lighting systems
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• Commissioning • Demand-response technologies • Distributed generation systems • Combined heat and power systems • Occupant training programs • Energy management services • Building envelope insulation
EPC market in Europe
EUROPE : low level of investment in Europe, using Energy Performance Contracts (EPCs): approximately EUR 150 m p.a. are undertaken each year. This European situation is due to several constraining factors as :
‣ Project development capacity ‣ The procurement process ‣ The statistical treatment of such arrangements
Greek and Cypriot ESCO market overview ‣ In recent years, various policy developments have been put in place, addressing some
important barriers. Despite these developments, the Greek and Cypriot ESCO market remains stagnant, with very few projects implemented.
‣ An ESCO registry has now been created in Greece and Cyprus. The registries contains data for 47 ESCOs in Greece and 19 ESCO in Cyprus at the end of 2015.
‣ In Greece, in order to boost the market, pilot projects are planned and the involvement of JESSICA is foreseen.
‣ A number of key elements, deemed as key drivers for a kick-start of the ESCO market, are now in place in the Cypriot framework. More awareness and information sharing measures are necessary to attract the interest and increase the trust among potential partners.
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EPC potential market in Greece
‣ Summary Total ESCO market status (2015) : poorly developed, unclear number of active ESCOs
‣ EPC market status (2016) : probably only 1 EPC provider, with a few (max. 10) projects ‣ Total ESCO market size : ~0 ‣ EPC-only market size (investment) : ~0 ‣ EPC market potential : €5 million ‣ EPC definition : in Law 4342 / FEK143A/9-11-2015 includes the definition, which is
part of the EED transposition. ‣ Established sub-sector(s) : none ‣ Key general barrier(s) to be removed : political focus on other priorities , lack of good
experience; high transaction costs on market basis, and financial institutions are not interested in EPC financing.
‣ Key driver(s) to date : Energy Efficiency Fund (on hold) ; EPC registry ‣ Expected development/forecast : no changes are foreseen in the current circumstances ‣ Opportunities for further development : In the current circumstances and with the
available tools, the ESCO market does not seem to be able to kick-off
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EPC potential market in Cyprus
‣ Total ESCO market status (2015) on the ground, 19 ESCOs registered, no projects
‣ EPC market status (2016): initiation (all ESCO initiatives seem to be EPC) ‣ Total ESCO market size : 0 ‣ EPC-only market size (investment) : 0 ‣ EPC market potential : n/a ‣ EPC definition : provided in the 2014 Amending Law and Regulations on the
operation of Energy Service Providers : 2 pilots are prepared currently ‣ Key general barrier(s) to be removed : lack of examples to follow, lack of trust
,high interest rates ‣ Key barriers in the public segment : complexity of the concept , in-house
expertise ‣ Key driver(s) to date : framework legislation established , templates , supplier
interest ‣ Expected development/forecast : Depends on the success to kick-off the
market, but expected to start-off ‣ Opportunities for further development : the two pilots should be successful
and showcase EPC
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Energy Performance Contracts: Financing models
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ESCO
LENDER/DEBT PROVIDER
HOST/ PROJECT OWNER
Energy performance
contract
Funding arrangement
ESCO
LENDER/DEBT PROVIDER
HOST/ PROJECT OWNER
Energy performance
contract
Funding arrangement
Esco performance Guarantee
Unfunded EPC Funded EPC
Private project owner
Public project owner
Eurostat « off balance » treatment could apply
Practitioners Guide for EPC statistical treatment
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EIB Group, jointly with Eurostat, launched in May 2018 an accompanying practitioners’ guide to help the market make the most of the possibilities now available. The guide is aimed primarily at public sector stakeholders, to give them greater
understanding/clarity on how statistical rules are applied to EPC arrangements. It is expected that more use of EPC arrangements by public authorities, as a
result of the clarification of their statistical treatment, could also contribute to foster energy efficiency investment activity in public buildings. By supporting both the public sector in preparing and procuring their projects in
this way, and by helping to finance the private sector contractors to undertake the investments, EIB Group has a significant role to play in this regard.
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What do Eurostat’s rules imply?
If an asset is “on balance sheet” for government:
If an asset is “off balance sheet” for government then government only records any regular payments for services over the long-term
Eurostat rules relate to statistical treatment - not to be confused with accounting rules/practices and budgeting
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About the Guide
• Based on existing rules (European System of Accounts - ESA10, Manual on Government Deficit and Debt, 2017 Guidance Note on EPC) it clarifies how they apply
• Explains Eurostat’s interpretation and application of the rules and approach to assessing the statistical treatment
• Official Eurostat guidance and the reference point for Eurostat advice and decision on EPCs
• Can be used to assess future EPCs and/or reassess signed EPCs
THANK YOU !
More information at: EIB Advisory Services : Laurent Bender or Robert Pernetta ‣ [email protected] or
‣ www.eib.org [email protected] ELENA www.eib.org/elena
