European Energy Efficiency Fund and the Green for Growth Fund SE4ALL Energy Efficiency Hub Workshop DOUBLING THE GLOBAL RATE OF IMPROVEMENT IN ENERGY EFFICIENCY BY 2030

Copenhagen, 16th & 17th June 2014

Table of Content. 1. 2. 3.

Background DEEP Green Layered Risk Fund 3.a

3.b

EEEF Green for Growth

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1. Background • EU is substantially behind its 2020 target concerning reduction of primary energy consumption. • EE investments are not taking place at the required pace, among other reasons because EE financing market is not yet sufficiently developed. • The EIB could play a higher role in developing the EU EE debt financing market. • The new EED and the commencement of a new MFF provide a good framework for EU support.

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1. Background Lending for Renewable Energy and Energy Efficiency (RE & EE) • RE & EE account for over 1/3 of Climate Action lending • 2008-2013: EUR 38bn of financing to RE & EE projects EIB lending for Renewable Energy and Energy Efficiency

*Climate Action (CA) assumed to account for 25% of total lending in 2014-2015 (in 2013 : 27%; EIB’s Corporate Operational Plan assumes >25%); Shares of RE and EE in CA lending based on 2013 shares

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2. DEEP Green Concept DEEP Green Platform Banks Compartment

Public sector Compartment

ESCOs Compartment

Technical Assistance

Utilities Compartment

• Debt for Energy Efficiency Projects Platform aims at developing a suite of new financial products for four groups of EIB customers, namely, banks, public sector, ESCOs and Utilities. • These new products aim to increase both EIB and commercial banks lending to the EE projects. • New products under DEEP Green will target aggregation and de-risking of EE projects to allow for debt financing.

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2. DEEP Green – Banks compartment.  Goal: Incentivising commercial banks and other EIB financial intermediaries to address the energy efficiency sector as a distinct segment.

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2. DEEP Green – Public sector compartment.  Goal: Facilitating access to public sector counterparts to long-term funding for the financing of EE projects, through “limited/non-recourse” and/or “off-balance” structures, where possible.

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2. DEEP Green – ESCOs compartment.  Goal: Developing the ESCO market in the EU, in particular the “energy performance contracting” market, by providing limited/non-recourse re-financing structures for the ESCOs.

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3. Layered Risk Funds – General • •

Fund investments demonstrate the EIB’s catalytic effect Efficient use of EIB capital through a leverage effect

€90 third party commitments

€100 of Equity available to projects that meet EIB objectives

€10 EIB commitment

Policy test upfront and project driven (i.e. primary focus on the underlying assets in terms of fit with EIB objectives and economic benefit) Can invest time to work with a fund manager from concept stage Can go into segments not quite mainstream yet (e.g. bio-diversity, land decontamination, land use/carbon) Can support start-up teams and new concepts Can play different management roles alongside investment

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3. Layered Risk Funds  



Layered-risk funds allow the issuance of different share tranches and notes to offer investors different risk-return profiles. The capital structure of such an investment vehicle typically rests upon the provision of a first loss piece (termed junior C shares in the figure below) by donors. Once the asset side of the fund develops, this structure allows the possibility to issue notes to private investors who remain most senior in the cash waterfall.

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3.a European Energy Efficiency Fund Structure EUR, Local FX investments Investment Committee Management Board

Issuer Vehicle Luxembourg

Investors

Super-Senior Tranche (Notes)

Institutional Investors

Investment Advisor

Direct Debt & Equity

Loans

FIs

Municipal, local, regional and national authorities and public or private entities acting on behalf of those public authorities

Technical Assistance Facility

EUR funding

Senior & Sub Debt Loans

Senior Tranche (A Shares)

Private Investors, International Financial Institutions or Development Finance Institutions

Mezzanine Tranche (B Shares) Junior Tranche (C Shares)

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3.a EEEF Typical projects Project examples Building upgrades

Street lighting

Biomass plants

Photovoltaic

Characteristics  Energy audits completed, vast energy savings potential  Sufficient know-how of ESCO in case of big projects  Savings guarantee required  Depending on counterparty risk additional parental/municipal guarantee required  Only light bulbs, switch boards plus EE related measures can be financed, not the light pole itself  Ownership of lighting points need to be in municipal hand  Technology with good track-record only  Contracts for input (feed-stock) / output (e.g. Electricity/heat) in place  Substitution of input possible  Technology with good-track record (e.g. boilers , turbines etc.)  O&M concept

Project structures

 Senior debt  Mezzanine / equity  Funding via co-investments in SPV or NewCo  Forfaiting (mostly for Building upgrades in a ESCO structure)  Leasing (mostly for clean urban transport projects)

 Land ownership in municipal hand  Grid connection secured  Feed-in tariff secured  O&M concept  Bankable module supplier

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3.a EEEF Forfaiting structure- guaranteed savings from the ESCO eeef (Purchaser)

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3

Collection of the receivables from Beneficiary

Forfaiting agreement: purchase of 70% of receivables (limited recourse) 4

Payment based on savings share

ESCO

Municipality

(Seller) 1

Implementation of EE measures acc. to Energy Performance Contract (EPC)

(Beneficiary)

Savings guarantee 

ESCO commits to increase the energy efficiency and guarantees certain savings for the Municipality (by way of an independent guarantee)



ESCO sells a certain part of its remuneration receivables at a limited-recourse1 base to the eeef, the purchase price is the net present value of the remuneration receivables discounted at a certain factor



EEEF collects the remuneration receivables from the Municipality



The forfaiting agreement will be signed by the ESCO and EEEF, however the Municipality has to agree to certain representations/undertakings 1 Limited

recourse means that EEEF has counterparty risk of Beneficiary to a certain extent in case of default and limited recourse rights against the Seller

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3.b Example layered debt fund: GGF 



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The Green for Growth Fund (GGF) is an example for a layered debt fund and aims to foster energy efficiency and renewable energy investments in South-East Europe and Turkey Initiated by the EIB and KfW and supported by the European Commission, GGF works predominantly through the provision of dedicated financing to businesses and households directly or through partnerships with financial institutions

Issuance of different share tranches (A, B, C and later Notes) offers investors different risk-return profiles

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Contacts

Christopher Knowles Head of Division Climate Change and Environment [email protected] Tf: + 352 4379 8 7306

Manuel Dueñas Deputy Head of Division Climate Change and Environment [email protected] Tf: + 352 4379 8 7215

Antonio Almagro Head of Division Knowledge Economy and Energy [email protected] Tf: + 352 4379 8 7686

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