EIB Financing of Energy Efficient LightingElisabetta Cucchi

Policy OfficerInstitutional Strategy Department

Brussels 10 December 2013

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The European Investment Bank (EIB)Long-term finance promoting European objectives

Economic and Social Cohesion and Convergence

Implementation of the Knowledge Economy

Development of Trans-European Networks (TENs)

Support for Small and Medium Enterprises (SMEs)

Environmental sustainability

Supporting Sustainable, Competitive and Secure Energy

EIB was created by the Treaty of Rome in 1958

EIB is a not-for-profit, policy driven institution

EIB is 100% owned by the 28 EU Member States

EIB signed loans amounting to EUR 52bn in 2012 (90% in EU)

EIB uses its special expertise and resources to make a difference to the future of Europe and its partners by supporting sound investments which further EU policy goals

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EIB support to Energy Efficiency

EIB lending to energy efficiency averaging EUR 1.3bn/year since 2008Focus on buildings (50%), energy (30%) and industry (15%)Recent EIB Energy Review prioritises “no regrets” sectors : energy efficiency, renewable energy, networks and RDI

EUR bn

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EIB Financing Facilities

EIB provides two main facilities:

Direct Loans

Large-scale projects (more than EUR 25m)

Intermediated Loans

Small and medium-scale projects (particularly to SMEs) via national

and regional intermediary banks

Lending decision remains with the financial intermediary

Joint Financial and non-Financial Instruments

In addition to its traditional lending activity, EIB is complementing its action towards the development of the EE financing market in the EU with a number of initiatives in cooperation with the European Commission, notably:

EEEF: European Energy Efficiency Fund

JESSICA: Joint-European Support for Sustainable Investments in City Areas.

ELENA: European Local Energy Assistance

EPEC: European PPPs Expertise Centre

DEEP Green: Debt for Energy Efficiency Projects Green platform (under discussion)

RSFF: Risk-Sharing Finance Facility

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Focus on Lighting

Lighting usually financed as part of broader investment programmes

SSL/LED is one EE technology choice

Issue of high initial cost vs. long-term savings

One option for this could be Energy Performance Contracting / use of

ESCO business model

LED lighting in buildings could be one of the technology choices by the

ESCOs

European Energy Efficiency Fund (EEEF)

EUR 265M (EUR 125M EERP, EUR 75M EIB, EUR 60M CDP and EUR 5M DB)

• Managed by Deutsche Bank (www.eeef.eu)

• 70% of the investment shall be targeted towards Energy Efficiency

• Beneficiaries: Local & regional Public authorities, but PPPs are possible.

• Financing in form of loans, guarantees, forfeiting schemes (to finance ESCO

projects)…

• Technical assistance (grant) is available to structure projects (EUR 20M).

• Results to date: 6 projects (EUR 79M) + 8 TA operations (EUR 6.3M) approved

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EEEF - Eligibility and project structures

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EEEF Case study: Building retrofit University of Applied Sciences - Munich, Germany

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JESSICA at a glance

Joint European Support for Sustainable Invest. in City AreasObjective: invest Structural Funds in a revolving way to urban projects, including EE

• Initiative of the EC (DG REGIO) launched in 2006 together with EIB and CEB to establish a common approach for financing urban development and strengthening the urban dimensionin cohesion policy through repayable assistance

• Investments in sustainable urban transformation (brownfields/city regeneration, renewable energy, energy efficiency, clusters’ development, transport, tourism/public service infrastructure)

Overall JESSICA objectives

• To increase Structural Funds’efficiency and productivity

• To increase leverage

• To exploit new partnerships and synergies

Use of innovative financial instruments allowing for the reutilization of resources invested in the urban sector

Mobilize public/private resources for investments in projects being part of an integrated urban development schemeUse of managerial, financial and implementation competencies of the private sector and IFIs such as EIB

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URBAN DEVELOPMENT FUNDURBAN DEVELOPMENT FUND

EUROPEAN COMMISSIONStructural Funds

EUROPEAN COMMISSIONStructural Funds

MEMBER STATEVia a designated Managing Authority

MEMBER STATEVia a designated Managing Authority

Holding FundHolding Fund

Projects forming part of an Integrated Plan for Sustainable Urban Development

optional

OTHER INVESTORS(Public & Private)

OTHER INVESTORS(Public & Private)

IFIs/Public Agencies/ Banks

IFIs/Public Agencies/ Banks

Investment (equity, loan or guarantee)

CITIESCITIES

JESSICA structure

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18 JESSICA HFscurrently operating in 10 Member StatesEUR 1.8bn in commitments

Holding Funds (HFs)

42 agreements signed to dateEUR 1.5bn committed to UDFs

Urban Development Funds (UDFs)

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12

1

3

5

1

1

1

57

3

72

2

5

62

1JESSICA HF in the Member States

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18

JESSICA UDFs in the Member States

2 JESSICA Technical Assistance / Fund and Structuring Services1

JESSICA state of play

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JESSICA: focus on energy / EE

Possible types of JESSICA energy projects:

Renewable Energy• Solar, biomass, wind

Clean Transport• Electric vehicles, including automobiles,

motorcycles and bicycles • Fleet management (improvement of

energy efficiency)

Energy Efficiency, Co-generation and Energy Management

• Renovation or extension of existing district heating or cooling networks; high-efficiency combined heat and power

• Energy savings/energy efficiency in buildings

JESSICA track-record in EE to date:

Out of the 18 Holding Funds (EUR1.8bn) with EIB as HF Manager/ ~ 35% potentially allocated to EE related Urban Projects:•Lithuania, EUR 227M HF: EE in housing•London, EUR 48M UDF: EE and small scale RE in public buildings•Italy, EUR 86M UDF: EE and small scale RE and transport projects•Spain, EUR128M HF: National HF for EE/RE

•EE projects may also be financed through as part of urban regeneration investments in “traditional” UDFs (e.g. Portugal, Bulgaria, Scotland, Poland)

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Background: Replacing street lighting in the city of Ponferrada to improve energy efficiency, in accordance with the national Energy Efficiency and Savings Plan 2011-2020

Best practice because…Significant reduction in

energy consumption and in CO2 emissions

Introduction of new technology

Cost savings of approx. EUR 1 mil. in the first year

alone

Market gapCurrent solution:

inefficient, expensive to maintain, high light

pollutionLong-term project – 12y

Preferential interest rate –50% JESSICA contribution

JESSICA project example:Public Lightning Replacement in Ponferrada (Spain)

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ELENA at a glance

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ELENA – eligibility and activities

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ELENA - ESCO Project Development

Supporting cities:• City of Paris• Greater London Authority (RE:FIT, DEPDU)• Villa Nova de Gaia• City of Ljubljana• BristolSupporting provinces and small municipalities:• Province of Barcelona • Province of Milan • Province of Modena • Province of Chieti• Province of Padova• Region of Murcia• Lisbon Region

The European PPP Expertise Centre (EPEC) is a unique cooperative initiative of the EIB, the EC as well as EU Candidates and MS.

Specific activities in

EPEC and Energy Efficiency

EE Mandate:To raise the awareness of local, regional and national authorities in the areas of

energy efficiency and renewable energy improvements in housing and other types of buildings

Goes beyond EPEC’s usual focus on PPPs

Materials: guidance and factsheets

•EE in buildings•Street-lighting•Cohesion Policy•ESCOs and EPC•Information on financing for EE

Knowledge-sharing

•Dedicated website•www.eib.org/epec/ee•Case-study database•Contacts database •Stakeholder cooperation

Events

•Workshops•Roundtables•Seminars•Conferences

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DEEP Green

Banks Compartment

DEEP Green Initiative

Utilities Compartment

ESCOs Compartment

Public sector Compartment

• Debt for Energy Efficiency Projects Green Platform (DEEP GREEN Platform).

• Structured in four different lines of products (“compartments”) to cover the diverse financing needs of the key players involved in the EE market.

• Targets aggregation and de-risking of EE projects, key barriers to the financing of the EE market

• Aim at increasing financing availability for EE projects by further developing EIB and commercial bank lending activity to EE

• Focus on 1st compartment as a first step

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Direct Lending Indirect Lending / Financing

EU

Corporate / Project FinancingSenior Loans (pari passu)Subordinated Debt

Financial Intermediaries(extend lending capacity)

Risk SharingCo-financing

1 2

Aaa Aa A (Baa3) Ba B

RSFF[up to EUR 10bn

assumingleverage of 5.0x ]

Risk Sharing Finance Facility (RSFF)

RSFF Value Added Proposition

Competitive terms and pricing

Long Maturities of up to 10 years

Large single loan sizes (< EUR 300m)

Strong technology/industry expertise

No cross selling / Take and hold strategy

Signaling Effect: EIB as quality stamp

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RDI in Manufacturing – What can be financed?

R&DR&D programmes (typically over 3

to 4 years);

Eligible costs R&D Opex, such as personnel

costs, contract research, consumables, overheads; R&D Capex, such as facilities,

equipment, acquisition of tangible & intangible assets, if a prerequisite.

InnovationCapital expenditure related to the

first commercial launch Deployment of KETs

Eligible costsPrototypes & pilot plants; First of a kind production lines, Application of advanced

manufacturing systems, Deployment of advanced and

efficient processes.

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RSFF Results to date (3Q 2013)

To date direct RSFF operations have been signed in 23 countries.

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RSFF Vision for MFF 2014-2020How do the new initiatives fit into the EIB Group product offering?

EIB Global Loans

EUR 7.5m EUR 25m EUR 300m

RSI: Innovative SMEsCIP: SMEs

Hig

h

R

ISK

Low

EUR 25K

EIB/EIF MCI

EIB Investment Loans/Guarantees

EIB RSFFIndividual RDI Loans

Fund of Funds Focus: SMEs (40% Buy-Out)Av. Ticket Size: EUR 1.8m

RSFF GFIDirect (Co-)InvestmentsPure RDI Invest. Focus

Mid-Caps onlyAv. Ticket Size: EUR 15m

SIZE OF SINGLE TRANSACTION

Fund

ing

Pre-seedSeed Funding

Start-up / Mezzanine/Growth Commercialization / Industrialization Growth / StabilityPhas

es

1st Valley of Death

2nd Valley of Death

EIF

Fund

of F

unds

A

ppro

ach

Deb

t PF

Gua

rant

ees

EIB

RS

FF (E

C)

EIB

Ow

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apita

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LED lighting in buildings could be one of the technology choices by the

ESCOs

EIB financing is available for larger and smaller projects including via

specialized funds (i.e. EEE-F)

Technical Assistance is available to develop large scale ESCO

programmes (ELENA)

Currently ELENA supports ESCO project development in excess of

EUR 500 million potential investment opportunities

Further advice via EPEC on street lighting and EE PPP structures

EIB support to RDI and manufacturing is also available

Summary