Friday, September 11, 2015

New Package Will Change Investors' Attitude To The $6 Trillion Energy Efficiency Market

A new package is to be made available to investors, building owners and the low carbon sector that will make investing in energy efficiency as easy as investing in renewable energy. Backed by €1.92 million of European Commission grant-aid, it is hoping to build demand by giving these clients greater confidence and a standardised approach that will reduce the present high transaction costs impeding greater uptake of energy efficiency in buildings.

The scheme is being developed by the Investor Confidence Project (ICP) Europe, a project of the EnvironmentalDefense Fund in the USA, where it is already attracting big name investors in the banking world.

The intention is to build a marketplace for standardized energy efficiency projects by increasing the reliability of projected energy savings. The individual projects can then be aggregated and traded by institutional investors on secondary markets – just like mortgages or other profitable asset-backed securities. As a result, ICP will be of interest to building owners, project developers, finance and energy service providers, insurers, local authorities and utilities.
Steven Fawkes

The scheme is being fronted in Europe by Steven Fawkes (above), descendant of Guy, who is also a member of the Investment Committee of the London Energy Efficiency Fund and comes with 30 years experience of energy efficiency.

"We want to make energy efficiency become an indispensable part of every institutional investor's portfolio. It is potentially the biggest value opportunity on the planet," says Steven. "The world spends $6 trillion on energy so saving one third would equate to $2 trillion savings. And don't forget the co-benefits – real and measurable ones such as improved productivity, health, life-saving and jobs, which often are not considered in the cost-benefit equation.

The European Commission alone puts the size of the investment required at around €100 billion per year. The key to unlocking access to this market, Steven explains, is the ICP System, that standardizes how energy efficiency projects are developed and measured, in the savings projections and underlying investment yields, via a series of Investor Confidence Project Protocols.

"These are equivalent of the standardised approaches investors use when looking at investing in energy supply projects," he says. "Quality is guaranteed through independent assurance, the application of monitored best practice standards to each phase of a building retrofit, and by contracting the work to industry-leading professionals. The result is Investor Ready Energy Efficiency projects."

For investors, the near-term benefit of this will involve a significant increase in deal flow. Increasing the number of fundable projects will in turn result in significant long-term benefits including:
  • reduced transaction costs;
  • lower costs of capital;
  • increases in available credit;
  • actuarial data sets.

 From the investors' point of view, limited actuarial-quality project data and industry fragmentation have been discouragements to putting their cash into energy efficiency. To remedy this, ICP Europe is forging strategic alliances with the financial and efficiency sectors to develop renovation projects and industry standardization and embed the Protocols into their financing process.

"At the same time, we're collaborating with government and civil society groups to facilitate the necessary public policies and education activities to support adoption of our products and services," he says. Initially ICP is working in Austria, Bulgaria, Germany, Portugal and the U.K., but the project will later be rolled out across Europe. In the UK alone, it could create over 100,000 direct and indirect jobs, quickly and across the UK.

There's a human angle too – 7 millionpeople live in fuel poverty in the UK, causing poor health and premature death. "26,000 people die of the cold each year, with at least one-third of these deaths due to people living in cold homes," says Ingrid Holmes of E3G.

ICP is backed by the European Commission, whose report, Energy Efficiency – the first fuel for the EU Economy, was published last February by the Energy Efficiency Financial Institutions Group (EEFIG), a group of over 100 organizations, including Deutsche Bank, ING, Allianz and BNP Paribas. Its new Financing Energy Efficiency web site lists ICP Europe as a recommended initiative and the only initiative listed that's independent from the European Commission.

Fawkes concludes: “Energy efficiency has provided more energy services over the last 40 years than any other energy resource, and we did that without really trying.  Imagine what we can do if we make a real effort! In buildings it has high returns without subsidy, is quick to implement and completely clean”.  

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