European Investment Bank

How to make best use of European instruments: comments by EIB

Presentation at BPIE European Roundtable on financing energy efficiency in European Buildings: how to boost large scale retrofit? Edward CalthropEconomist, IAD.

November 16, 2010

2

1. Scale of challenge2. Two broad issues

a. Programme design – ELENAb. Tailored use of EU funds: JESSICA,

Green for Growth Fund3. Conclusions

Annex: additional information – not to be presented.

Overview

3

1. BAU not sufficient (9% EE by 2020 only)

2. Some key actors strained..a. Fiscal crisis on public budgets

b. Capital-constrained banks (Basel III)

c. Home owners: delaying renovations?

3. ..but fundamentals still good (NPV>0)

1. Scale of challenge

Need to achieve maximum value for money in publicly-supported programmes

4

Many technical studies, but (often):•Poor capacity in house to transform ideas into bankable programmes (notably for EPC – the silver bullet?);•Insufficient scale to attract private sector

ELENA can help. e.g. Prov of Milan – schools across 30 municipalities delivered by EPC

2a. Municipal programme design

5

Use 4% ERDF! (political decision)

Use intelligently….so which market failure is being addressed?

•Poor home-owner information? (nominal vs. relative

IRS) •Risk aversion? (Guarantees; ESCO finance?)

Example 1: JESSICA

Example 2: Green for Growth fund

2b. Tailored use of EU funds

6

Large challenge

Programme design key (use ELENA)

Tailored financing solutions (JESSICA, GGF) available

EIB willing partner in this process

3. Conclusions

7

Further contact with EIB:

Ralf GoldmannSenior Engineer, Energy Efficiency division, Projects Directorate.

Tel:+ 352 4379 87761

Email: r.goldmann@eib.org

Edward CalthropSenior Economist, Institutional Affairs Department

Tel: +32 2 235 00 94

Email: e.calthrop@eib.org

8

Additional information on

1. EIB

2. ELENA

3. JESSICA

4. Green for Growth Fund

Annex

9

Additional information on

1. EIB

2. ELENA

3. JESSICA

4. Green for Growth Fund

Annex

1. EIB Energy lending

Four priority areas for EIB: Renewable energy Energy efficiencyDiversification and security of internal supply (including TEN-E)External energy security and economic development

Individual loans of EUR 13.5bn in EU in 2009:EUR 4.0bn for renewable energy projects (1)

EUR 2.0bn for TEN-E projects

Individual loans of EUR 34.2bn 2005-2009 in EUEUR 8.3bn for renewable energy projects (1)

EUR 6.9bn for TEN-E projects

(1)Includes renewable energy sources and manufacturing projects.

EIB energy lending:In 2009, €14.2bn (€13.3bn within EU-27), a 40% increase over 2008During the period 2005-2009 €37.4bn

1: EIB Contribution to EU Policy

Energy Lending

EIB Energy Lending 2005-2009 (€bn)

0

2

4

6

8

10

12

14

2005 2006 2007 2008 2009

Misc

RE

Gas grids & storage

Electricity Grids

CHP/District Heat

Gas Power plants

Coal Power plants

LNG

1. EIB: Energy Efficiency (EE)

Energy efficiency is the most cost-effective way of reducing emissions and energy demand

The EIB’s EE target areas include:Residential, commercial and public buildingsTransport (rail, road, urban transport, ECTF)Electricity production & distribution (CHP, smartgrids)Industry

EE considerations are mainstreamed into all EIB operations, working with promoters to extend the EE potential of projects

13

Additional information on

1. EIB

2. ELENA

3. JESSICA

4. Green for Growth Fund

Annex

14

INVESTMENT PROGRAMME

EE and RES investments in public and private buildings, including social housing and street and traffic lighting

DH networks Decentralised CHP Urban transport to support

increased energy efficiency and integration of renewable energy sources

Local energy infrastructure to support developments in previous sectors

ELENA (Project Development Services)

Support to Final Beneficiaries with:

• Refine Feasibility studies• Business Plans

• Technical studies (energy audits) • Procurement/tendering/contracting

• Additional technical staff• Financial structuring

ELENA - overview

15European Investment Bank / ELENA Facility

ELENA Eligible entities

ELENA beneficiaries: local and regional authorities or other public entities, or groupings of such entities, including those subscribing to the Convenant of Mayors

Eligible countries: EU, Norway, Iceland, Liechtenstein and Croatia

All or part of the investment programme may be implemented by bodies other than the abovementioned entities, including private firms

16

European Investment BankSupporting cities to cut carbon

EXAMPLE --- EE in Province of Milano

In 2006, grant-funded programme of energy audits of public buildings in

Province (180 municipalities).

Problem

Individual municipalities budget constrained; also lack of technical

capacity at municipal level to develop a flow of projects.

Solution

•adopt energy performance contracting •aggregate projects

•coordinate at Province level; standardise contracts and energy cost baseline.

17

EXAMPLE --- EE in Province of Milano

Programme: Refurbishment of existing school buildings in some 30 to 40 municipalities:

Finance provided by local Banks, supported by EIB loan, with interest rate subsidy provided by Province. Stimulate Italian ESCO market and local Financial

Intermediaries.

Implementation by ESCOs. Pay investments costs; provide guarantee for energy savings (around 20%); serve debt through portion of energy savings.

•Simple technologies: lighting (Compact Florescent Lamps; automation systems etc), heating (new condensing boilers;

heating system pumps…)

•Measures touching building envelope (roof insulation etc) may be included.

18

Partnership Agreement between DG-Tren & Prov-MI for the

Covenant of Mayors

Promotion among Municipalities

Preparation of Sustainable Energy Action Plans

Assessment of Energy Audits on Public Buildings

Agreement between EIB and Prov-MI

Tender for FI

Financial Intermediare

Call for Bids c/o Municipalities

Terms of Contracts

Winning ESCOs

Energy Performance Contracts for Energy Saving

Fuel Suppliers

Provincial Funds

EIB funds

Financial Support

MunicipalitiesFuel Payment Reimbursments

to ESCOs

Savings

Actions co-financed by ELENA

19

Additional information on

1. EIB

2. ELENA

3. JESSICA

4. Green for Growth Fund

Annex

20

European CommissionERDF – DG Regio

European CommissionERDF – DG Regio

ERDF Managing Authority / OP resources (2007-2013)ERDF Managing Authority / OP resources (2007-2013)

EU

leve

lNa

tiona

l /

regi

onal

leve

l

Holding Fund (option) Holding Fund (option)

Urban Development Fund («UDF»)

Urban Development Fund («UDF»)

Fund

leve

lPr

ojec

t lev

el

Projects

€

PPPs SPVs

Equity

Loan

Guarantee

Integrated urban development plan / strategy

Other

(public or private)

investors / partners

Other

(public or private)

investors / partners

Operational Programme (2007-2013)

Projects

€

€

€

€

€

€

€

Grant financingGrant financing

Grant

€

flexible customisation / tailored structure

JESSICA - main components

21

EIB taking a leading role, alongside DG-REGIO, in promoting and developing JESSICA instruments in MS

SF Regulations specifically provide for EIB to act as a Holding Fund (on a not-for-profit basis)

Technical assistance and dissemination of best practice, based on established expertise in lending to urban renewal/regenerations projects across the EU

Providing complementary loan financing

The role of EIB

22

Low interest loans (UDF) Grants covering project preparation costs

when “D” energy class achieved Grants of 15% of project costs when “C”

energy class achieved

JHF in Lithuania

TA provided:• Assistance on programme implementation and optimisation

• Assistance on establishing sound programme management

• Streamlining of the procedures

A

B

C

D

E

F

G

23

Additional information on

1. EIB

2. ELENA

3. JESSICA

4. Green for Growth Fund

Annex

24

GREEN FOR GROWTH FUND, SOUTHEAST EUROPE

25

Key Features

The mission of the Fund is to contribute, in the form of a public private partnership with a layered risk/return structure, to enhancing energy efficiency and fostering renewable energies in the Southeast Europe

region including Turkey, predominantly through the provision of dedicated financing to businesses and households via partnering with

financial institutions and direct financing.

•Initiators: European Investment Bank and KfW Entwicklungsbank, supported by the European Commission

•Domicile: Luxembourg SICAV-SIF

•First closing: December 17 2009

Mission Statement

26

Investors and Donors

Initiating Shareholders

Current Shareholders TA Facility Donors

27

Objectives and Instruments

Objectives

• Broadening the financing base of energy efficiency and renewable energy investments in the region

• Increasing awareness and deepening the financial sector servicing those development needs

• Harmonize and coordinate donor initiatives

Instruments

• Medium to long-term senior loans

• Subordinated loans

• Letters of credit

• Guarantees

• Mezzanine debt instruments

• Local debt securities

• Equity

• Technical Assistance support

28

Current Target Partners

Albania

Bosnia and Herzegovina

Croatia

FYR of Macedonia

Montenegro

Serbia

Kosovo1

Turkey

1under UNSCR 124/99

29

Investment Objectives

What?• Minimum 20% reduction in energy consumption• Minimum 20% reduction in CO2 emissions

Where?• Target Partners

To Whom?• Financial Institutions• Non-Financial Institutions

How?• Loans & guarantees• Mezzanine financing• Equity

HouseholdsHomeowner AssociationsCompanies, including ESCOs and RE companiesMunicipal & public entities

30

Eligibility Criteria

Investments through Financial Institutions

*Subject to strict limitations

Standard Non-standard

SME/Industrial/Muni

Recipient Households, SME HOA, SME Businesses, Municipalities, Public Sector

Min sub-loan N/A N/A €100k

Max sub-loan €500k €500k €10 million

Eligible Measures Building envelope, heat source & distribution, lighting, renewable utilization, combined heat/power, (white goods* – standard only)

EE and RE projects

31

Eligibility Criteria

Investments through Non-Financial Institutions

To/through ESCOs Energy service/supply

Recipient Public sector, industrial EE/RE service or equipment companies

Min loan €100k N/A

Max loan €10 million €10 million

Eligible Measures Energy efficiency, renewable energy, energy performance contracts, energy supply contracts

EE/RE producers or vendors, service companies