March 4, 2015

EEFIG report: Energy Efficiency is the first fuel for the EU Economy

Deutsche Bank contributes to land-mark energy efficiency finance report for the European Union. The conclusion: Energy efficiency investment is the most cost effective way to reduce the European Union’s reliance, and expenditure, on energy imports which today cost the EU over EUR 400 billion a year.

In 2050, 75-90% of today’s buildings will still be in use but 75% of current buildings were built with no or minimal focus on energy efficiency. As buildings account for 40% of Europe’s energy consumption, increasing the renovation rate of buildings is critical. As well, only half of the estimated EUR 60 -100 billion of annual investment required to achieve Europe's 2020 energy efficiency targets in buildings is being met. The dramatic fall in the oil price, and its likely impact in lower European gas prices, highlights the need for Europe to have buildings, industry and SMEs whose competitiveness and running costs are better insulated from the uncertainties and volatility created by commodity price shocks. Combined with the need for Europe to transition to a competitive low carbon economy, these factors make increasing the level of energy efficiency investment of strategic importance to Europe.

International landmark study on how to scale-up investment levels

The European Commission and UNEP Finance Initiative (UNEP FI) co-convened a group of finance and other experts to recommend ways to scale-up investment levels. Deutsche Bank was a core member of the Energy Efficiency Financial Institutions Group (EEFIG), which recently published its final report “Energy Efficiency – the first fuel for the EU Economy: How to drive new finance for energy efficiency investments”. The EEFIG report identifies the critical success factors, policies, market instruments and financing solutions to increase energy efficiency investments in Europe in the buildings, industry and SME sectors. The international landmark study is the result of 16 months of work of more than 120 active participants representing finance, policy makers, the buildings sector, industry, SMEs and energy efficiency market participants.

A five-fold increase in private energy efficiency investments in European buildings is required

The EEFIG report estimates that a five-fold increase in private energy efficiency investments in European buildings is required by 2030. Whilst there is no single solution, EEFIG identifies a framework of cross-cutting measures and requirements for different building and industry sub-segments. EEFIG identifies the need to engage multiple stakeholder groups, scale-up the use of several financial instruments within a clear and enforced “carrot and stick” legislative framework and identifies 19 recommended market and policy actions in four strategic areas of market, economic, financial and institutional.

Investing into energy efficiency measures is fundamentally important for Europe

European Commission Vice President, Maroš Šefčovič, welcomed the launch of the report with the following words: "Investing into energy efficiency measures in buildings, industry and in SMEs is fundamentally important for Europe. I will strive to ensure that energy efficiency investment financing is looked at in our forthcoming policies and that this Report will be used as inspiration for our further work.” The EEFIG report had a direct influence on the new European Energy Union and Climate strategy.

Caio Koch-Weser, Vice Chairman of Deutsche Bank, said in reference to EEFIG’s work: “Our experience and research shows that energy efficiency finance and investment opportunities can be profitable and contribute to improving energy security, economic growth and reduce our footprint. Scaling up investment into Europe’s buildings and industry requires much greater cooperation between policy makers, companies and the financial sector. There is also great potential to help deepen the real estate investment industry’s already strong focus on energy efficiency by using robust information, incentives and targets to drive investment.”

Felipe Calderón, Former President of Mexico and Chair of the Global Commission on the Economy and Climate commented: “This report’s conclusion that scaling up energy efficiency is strategically and economically important for the European Union matches both my experience in government and the conclusion of the New Climate Economy initiative. Energy efficiency is already the biggest source of “new” energy supply, but large untapped potential remains in Europe. Implementing the report’s recommendations can support economic growth and help tackle climate change at the same time.”

Deutsche Bank’s financial expertise to assist clients in reducing energy use

There are many ways in which Deutsche Bank is active in energy efficiency and deploys our financial expertise to assist clients in reducing energy use:

  1. The Bank has made significant efforts to reduce our own energy use, such as the green refurbishment of the Frankfurt Towers and installing energy efficient services, lighting and heating systems in many of our buildings and using green leases in more of the buildings we occupy. These efforts contribute to the Bank’s carbon neutrality and cost reduction goals.
  2. This expertise was used to help win the fund mandate for the European Energy Efficiency Fund, which invests in projects to improve the energy efficiency of public sector buildings.
  3. Deutsche AWM real estate has an increasing focus on energy efficiency and will publish an annual report on progress in March, alongside Deutsche Bank’s Annual Report and Corporate Responsibility report
  4. Deutsche AWM real estate has an energy efficient property investment team focused on retrofits of physical buildings.
  5. The Sal Oppenheim managed Green For Growth Fund focuses on investments in Southeast Europe and other neighboring countries such as Turkey and Ukraine.
  6. The Corporate Banking & Securities (CB&S) division has structured an energy efficiency bond in California and is a leading player in the growing green bond market.
  7. The Private and Business Clients (PBC) division provides loans to businesses and individuals to support energy efficiency and renewable energy investment.

Several Deutsche Bank research reports were also cited in the EEFIG report:

energy-efficiency-energieeffizienz.jpg

Targeted energy efficiency measures

40%

of Europe’s energy consumption occurs in buildings

“Energy efficiency is already the biggest source of “new” energy supply, but large untapped potential remains in Europe. Implementing the report’s recommendations can support economic growth and help tackle climate change at the same time.”

Felipe Calderón Former President of Mexico and Chair of the Global Commission on the Economy and Climate
EEFIG conferenz

“Scaling up investment into Europe’s buildings and industry requires much greater co­ope­ration between policy makers, companies and the financial sector.”

Caio Koch-Weser Vice Chairman of Deutsche Bank

Estimation from the EEFIG report

A 5-fold increase

in private energy efficiency investments in European buildings is required by 2030.

Banks for increased energy efficiency investments

The Energy Efficiency Financial Institutions Group (EEFIG) was established as a permanent working group with the European Commission and the United Nations Environment Programme Finance Initiative (UNEP FI). The aim of the group is to use their experience to increase the scale of energy efficiency investments across the EU.

Recommendations from the report

Market actions

  • Improvement of buildings certification methodologies and Energy Performance Certificate standards and the implementation of minimum performance standards upon building upgrade, sale or rental to help build a vibrant and comparable pan-European market for buildings energy efficiency investments;
  • Improvement of information flows by developing an open-source energy and cost database for buildings and effective systems for sharing information and technical experience within industry sectors;
  • Facilitate innovation such as on-bill repayment and on-tax finance mechanisms by creating pilots to help grow energy efficiency investments in commercial and residential buildings;
  • Develop a project rating system to provide a transparent assessment of the technical and financial risks of buildings energy renovation projects and their contracting structure.

Economic actions

  • Streamlining, blending and optimizing the use of European Structural and Investment Funds, Horizon 2020 and EU ETS revenues for energy efficiency investments through ensuring their better linkage to National Building Renovation Strategies together with National Energy Efficiency Funds and energy market reforms;
  • Increase the use of targeted fiscal instruments to motivate both building owners and companies to prioritize energy efficiency during their natural replacement cycle;
  • Review of public and private accounting treatment of Energy Performance Contracts;
  • Further expert examination of the discount rates used in energy modeling, policy-making and investment decision-making, to adequately balance the benefits and risks of energy efficiency.

Financial actions

  • Development of a common set of procedures and standards for energy efficiency and buildings renovation underwriting for both debt and equity investments;
  • Adjustment to financial regulatory frameworks to better support capital market innovation, ensure that risk assessment and related capital requirements for long-term energy efficiency investments correctly reflect their risks and develop market potential for green bonds, citizen financing, factoring funds for Energy Performance Contracts and other more innovative sources of financing for energy efficiency;
  • Address barriers to expanding the green mortgage market, including by examining how to include energy costs and energy efficiency potential in mortgage affordability calculations;
  • Ensure that new regulatory frameworks for financial institutions (Solvency II and Basel III) do not prejudice energy efficiency investments2;
  • Ensure that public technical assistance and project development assistance facilities are compatible and can be easily combined with market-based and concessional funding by qualified and experienced financial institutions;
  • Ensure that public refinancing facilities, like those operated by the European Central Bank, confirm eligibility for financial instruments relating to energy efficiency.

Institutional actions

  • Increase the capacity to facilitate ongoing project development assistance to all relevant actors and technical assistance to relevant public sector bodies and entities for development and aggregation of energy efficiency investments in SMEs and households;
  • Review of the public authority procurement rules to better value lower operational costs as a part of their tender assessment processes;
  • Institutional capacity to implement National Buildings Renovation Roadmaps that enable long-term planning and supply chain scale-up to deliver and finance ambitious buildings renovation programs;
  • Increased focus on regulatory frameworks which support strong corporate energy efficiency investment choices at key points in their investment cycle (connecting with energy audits);
  • Review to ensure that current State Aid rules do not unnecessarily burden accelerated energy efficiency investing and the up-scaling of public-private financial instruments.

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