News & Events

The Commission is in the process of updating some of the content on this website in light of the withdrawal of the United Kingdom from the European Union. If the site contains content that does not yet reflect the withdrawal of the United Kingdom, it is unintentional and will be addressed.

Aggregation and bundling of loans for Energy Efficiency – the holy grail for the European Investment Bank: An opportunity for Housing Federations?

Share this Post:

The European Investment Bank (EIB) has launched a public consultation as part of the review of its energy sector lending policy, open until the end of the year. The review process is expected to be finalised in summer 2013.

The European Investment Bank (EIB) has launched a public consultation as part of the review of its energy sector lending policy, open until the end of the year. The review process is expected to be finalised in summer 2013.

Chaired by Cheryl Fisher, the new Director of Energy Department of ‘Europe’s Bank’ hosted an open workshop in Brussels on the 7th of December to hear first-hand views from stakeholders. The EIB delegation was not limited to the speakers but totalled about 15 experts from the bank working in all energy departments.

While topics covered ranged from nuclear power to ETS (the EIB price for tonnes of carbon is €30 – so higher than the current market price) to carbon capture and storage, energy efficiency came through as a clear priority both in the presentations and interventions from participants. The Bank allocates €85 billion annually to energy efficiency compared to €65 billion for gas/networks and €50 billion for renewables to 2020, with buildings identified as a priority sector.

What is blocking Cash Flow for Energy Efficiency?

The Bank’s experts have a clear view of the obstacles to lending to energy efficiency in general, many of which apply to the social housing sector. Projects are often small and fragmented in nature compared with the big energy infrastructure projects such as power plants which must become a thing of the past. Other obstacles leading to limited access to capital include budget deficit limits, retail banks not understanding the business of energy efficiency. This fragmentation results in high transactions costs, excessive complexity for small actors and a clear need for bundling of projects and intermediaries. Technical assistance schemes such as ELENA designed to assist local actors in prepared projects are too large for some (although the EIB did stress that 80% of ELENA money has been used).

Fisher explained that the bundling of maximum number of projects to cut down on transactions costs while ensuring quality control and respect for the banks criteria is the “holy grail of the EIB as other banks” while explaining that a big part of the transaction cost incurred is the price of conducting due diligence for loans. Speaking on behalf of CECODHAS Housing Europe, at the workshop, Marco Corradi, Chair of the Energy Experts Network gave a clear message about the logistical problems from the operational perspective of housing providers saying “the investment sizes are much too big ( e.g; 50 million limit for use of ELENA) and require complex collaboration between many municipalities”

He called for “capacity building tools which are more in tune with the operational level.” What can be concluded is that we are dealing with a size mis-match and that there is a need to examine the use of financial intermediaries to make the bridge. The possibility of building capacity of existing structures to channel through EIB funds such as the Caisse de Depot in France or of KfW in Germany is a clear one. In some countries, social housing federations, could also be potential aggregators as many already function as banks for their members. Working with such counterparts , when needed in partnership with local banks, has been proven to bring down transaction costs, risk and thereby interest rates. Where such institutions do not exist, their establishment is a must. They could also bring together new financing streams such as those which will be generated by energy supplier obligations in article 7 of the new Energy Efficiency Obligations or emissions trading schemes, particularly to address fuel poverty.

Are ESCOs the way to Go?

Another question included in the EIB written consultation is the role of energy service companies (ESCOs) in developing energy efficiency investments. Corradi notes the potential pit-falls of relying on energy savings of individual projects to cover investment and proposed mixing buildings of different types within refurbishment project to help spread the gains and defend general interest.

"A private market controlling the entire project structuring stream for the realization of energy efficiency in buildings would privilege those projects which are most profitable (such as swimming pools and rest homes), overlooking those projects which provide per se less savings, such as schools and social housing, particularly where under-heating due to fuel poverty is an issue". To avoid this he proposed "Initial screening and bundling of projects together followed by supervision by Public Social Housing Companies and Public Administration can guarantee the general interest and ensure the realization of all types of projects, which have been demonstrated to be profitable also when combined all together."

What is clear is that working with different funds with different sets of rules and procedures will definitely not help to increase the flow of finance to energy efficiency projects. Bundling on the borrowers side must be facilitated by the merging of financial streams and simplification of procedures on the lenders side. Existing public banks and housing providers can potentially be activated as effective aggregators working in a more uniform way and helping to reach the Holy Grail.

Related: EU-Energy Performance Contracting Campaign

In response to this changing financial and regulatory landscape, DG Energy in cooperation with the EIB's PPP expertise centre (EPEC), ManagEnergy Initiative and the Covenant of Mayors has launched an EU-Energy Performance Contracting Campaign to support Member States and market actors with the rolling out of functioning energy services market.