How to make best use of European instruments

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 Calthrop Economist, IAD. November 16, 2010 European Investment Bank

Overview 1. Scale of challenge 2. Two broad issues a. Programme design – ELENA b. Tailored use of EU funds: JESSICA, Green for Growth Fund 3. Conclusions Annex: additional information – not to be presented. 2

1. Scale of challenge 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) Need to achieve maximum value for money in publicly-supported programmes 3

2 a. Municipal programme design 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 4

2 b. Tailored use of EU funds 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 5

3. Conclusions Large challenge Programme design key (use ELENA) Tailored financing solutions (JESSICA, GGF) available EIB willing partner in this process 6

Further contact with EIB: Ralf Goldmann Senior Engineer, Energy Efficiency division, Projects Directorate. Tel: + 352 4379 87761 Email: r. goldmann@eib. org Edward Calthrop Senior Economist, Institutional Affairs Department Tel: +32 2 235 00 94 Email: e. calthrop@eib. org 7

Annex Additional information on 1. EIB 2. ELENA 3. JESSICA 4. Green for Growth Fund 8

Annex Additional information on 1. EIB 2. ELENA 3. JESSICA 4. Green for Growth Fund 9

1. EIB Energy lending Four priority areas for EIB: Renewable energy Energy efficiency Diversification and security of internal supply (including TEN-E) External energy security and economic development Individual loans of EUR 13. 5 bn in EU in 2009: EUR 4. 0 bn for renewable energy projects (1) EUR 2. 0 bn for TEN-E projects Individual loans of EUR 34. 2 bn 2005 -2009 in EU EUR 8. 3 bn for renewable energy projects (1) EUR 6. 9 bn for TEN-E projects (1)Includes renewable energy sources and manufacturing projects.

1: EIB Contribution to EU Policy Energy Lending EIB energy lending: In 2009, € 14. 2 bn (€ 13. 3 bn within EU-27), a 40% increase over 2008 During the period 2005 -2009 € 37. 4 bn

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 buildings Transport (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

Annex Additional information on 1. EIB 2. ELENA 3. JESSICA 4. Green for Growth Fund 13

ELENA - overview ELENA INVESTMENT PROGRAMME (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 § § 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 14

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 European Investment Bank / ELENA Facility 15

European Investment Bank Supporting 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. 16

EXAMPLE --- EE in Province of Milano Programme: Refurbishment of existing school buildings in some 30 to 40 municipalities: • 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. Implementation by ESCOs. Pay investments costs; provide guarantee for energy savings (around 20%); serve debt through portion of energy savings. Finance provided by local Banks, supported by EIB loan, with interest rate subsidy provided by Province. Stimulate Italian ESCO market and local Financial Intermediaries. 17

Agreement between EIB and Prov-MI Partnership Agreement between DG-Tren & Prov-MI for the Covenant of Mayors Tender for FI Promotion among Municipalities Preparation of Sustainable Energy Action Plans Assessment of Energy Audits on Public Buildings EIB funds Financial Support Provincial Funds Financial Intermediare Terms of Contracts Call for Bids c/o Municipalities Actions co-financed by ELENA Winning ESCOs Fuel Suppliers Municipalities Fuel Payment Savings Reimbursments to ESCOs Energy Performance Contracts for Energy Saving 18

Annex Additional information on 1. EIB 2. ELENA 3. JESSICA 4. Green for Growth Fund 19

JESSICA - main components EU level European Commission ERDF – DG Regio National / regional level Operational Programme (2007 -2013) ERDF Managing Authority / OP resources (2007 -2013) flexible customisation / tailored structure € € Holding Fund (option) Fund level € Equity Project level € € € Urban Development Fund ( «UDF» ) Other € € Loan (public or private) investors / partners Guarantee Projects Grant financing PPPs SPVs € Projects Grant Integrated urban development plan / strategy 20

The role of EIB Ø EIB taking a leading role, alongside DG-REGIO, in promoting and developing JESSICA instruments in MS Ø SF Regulations specifically provide for EIB to act as a Holding Fund (on a not-for-profit basis) Ø Technical assistance and dissemination of best practice, based on established expertise in lending to urban renewal/regenerations projects across the EU Ø Providing complementary loan financing 21

JHF in Lithuania 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 TA provided: • Assistance on programme implementation and optimisation • Assistance on establishing sound programme management • Streamlining of the procedures 22

Annex Additional information on 1. EIB 2. ELENA 3. JESSICA 4. Green for Growth Fund 23

GREEN FOR GROWTH FUND, SOUTHEAST EUROPE 24

Key Features Mission Statement 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 Kf. W Entwicklungsbank, supported by the European Commission Domicile: Luxembourg SICAV-SIF First closing: December 17 2009 25

Investors and Donors Current Shareholders TA Facility Donors Initiating Shareholders 26

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 27

Current Target Partners Albania Bosnia and Herzegovina Croatia FYR of Macedonia Montenegro Serbia Kosovo 1 Turkey 1 under UNSCR 124/99 28

Investment Objectives What? • Minimum 20% reduction in energy consumption • Minimum 20% reduction in CO 2 emissions Where? • Target Partners To Whom? • Financial Institutions • Non-Financial Institutions How? • Loans & guarantees • Mezzanine financing • Equity üHouseholds üHomeowner Associations üCompanies, including ESCOs and RE companies üMunicipal & public entities 29

Eligibility Criteria Investments through Financial Institutions Standard Non-standard SME/Industrial/Muni Recipient Households, SME HOA, SME Businesses, Municipalities, Public Sector Min sub-loan N/A € 100 k Max sub-loan € 500 k € 10 million Eligible Measures Building envelope, heat source & EE and RE projects distribution, lighting, renewable utilization, combined heat/power, (white goods* – standard only) *Subject to strict limitations 30

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 € 100 k N/A Max loan € 10 million Eligible Measures Energy efficiency, renewable energy, energy performance contracts, energy supply contracts EE/RE producers or vendors, service companies 31