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De-risking investments

EU has a structured dialogue with the finance industry to de-risk energy efficiency financing and make private investments more attractive.

EU and other public funds alone will not be sufficient to cover the investments necessary to reach the energy and climate objectives in 2030 and 2050. To reduce greenhouse gas emissions by 55% by 2030 (compared to 1990 levels), we need to invest an estimated €392 billion more each year in the energy system than we did in the period 2011-2020. Energy efficiency faces one of the largest investment gaps, estimated at around €165 billion annually.

Moreover, energy efficiency investments face a number of barriers: a fragmented market, complex decision-making processes and split incentives are amongst the key ones. The lack of knowledge and data about the benefits of energy efficiency improvements and the related uncertainties are also important obstacles.

Therefore, setting favourable framework conditions is necessary to ensure private financing supply to investments in energy efficiency of buildings, industry, transport and other sectors. This process takes place in the broader context of the EU policy focus on Sustainable Finance and the development of the Strategy for Financing the Transition to a Sustainable Economy, which also covers the financing framework for energy efficiency investments.

Attracting private investments

Energy efficiency investments can be perceived as too risky by financial markets. There are several factors contributing to this perception, but it is difficult to address due to a lack of data. For example, most loans for energy efficiency investments are not labeled as such, but rather as personal loans or general credit lines for companies.

To change the risk perception, it is important to gather data, promote appropriate labelling and provide guidance for risk assessment.

Energy Efficiency Financial Institutions Group

The Energy Efficiency Financial Institutions Group (EEFIG) was created in 2013 by the Commission and the United Nations Environmental Programme Financial Initiative (UNEP FI). It acts as an open dialogue and work platform for public and private financial institutions, industry representatives and sector experts. EEFIG’s aim is to identify barriers to long-term financing for energy efficiency and propose policy and market solutions to upscale energy efficiency investments.

In the framework of EEFIG, 2 specific tools have been developed aiming to inform financial institutions, investors and project promoters about the real benefits and risks of energy efficiency investments:

  • The De-risking Energy Efficiency Platform (DEEP) is the largest pan-EU open-source database containing detailed information on the technical and financial performance of over 15,000 industrial and buildings-related energy efficiency projects. It incorporates performance track records and helps project developers, financiers, and investors better assess the risks and benefits of energy efficiency investments across Europe. The Commission encourages all market players to support this initiative by sharing available data and performance track records.
  • The Underwriting Toolkit is a guide to value and risk appraisal for energy efficiency financing and was launched in June 2017. It aims to help financial institutions scale up the deployment of capital into energy efficiency. It also helps promoters develop bankable projects and can be used by public authorities to better assess energy efficiency projects that receive public funding.

EEFIG established a number of working groups to address key topics of energy efficiency investments, which resulted in the following reports:

De-risking project examples

The following projects were all funded under the Horizon 2020 programme:

  • The Carbon Risk Real Estate Monitor Project  (CREEM) developed a risk assessment tool that allows investors in the commercial real estate sector to analyse the risks of stranded assets due to low energy performance and to reallocate investment into more energy efficient buildings.
  • The Investor Confidence Project Europe  developed the certification system “Investor ready energy efficiency” which assembles best practices and existing technical standards into a set of Protocols leading to standardisation of project steps for project developers and reduced due diligence costs for investors.
  • The LAUNCH project enables large-scale aggregation of sustainable energy assets for financiers and supports contractors in accelerating pipeline growth through standardised investor-grade EPC contracts and risk assessment protocols.

Multiple benefits of energy efficiency

Studies show that energy efficiency investments are done not only for the positive effects on energy consumption, energy costs or greenhouse gas emission mitigation. Capital is invested often for multiple benefits:

  • creation of sustainable jobs
  • better health
  • less pollution
  • higher living comfort for EU citizens
  • long-term competitiveness of the EU economy
  • energy poverty is alleviated.