Utilities are well placed to play a major role in accelerating energy efficiency investment, but more investor confidence is needed to attract third-party finance. Now, utilities on both sides of the Atlantic are working with the Investor Confidence Project (ICP), which provides protocols for underwriting investment, to build trust in financial returns and environmental results.
Due to the typically small size of building renovation projects, aggregation is key to unlock the European retrofit market, estimated at between €60 million and €100 billion per year.
At present, Article 7 of the European Union Energy Efficiency Directive requires energy companies to achieve yearly energy savings of 1.5 per cent of annual sales to final consumers, opening up the possibility of stronger utility engagement in the retrofit market. The directive is currently under review, and will likely be influenced by the growing momentum in enabling mass-scale energy efficiency investment.
Financiers and policymakers are central to the energy efficiency financing debate. Utilities can help investors turn wasted energy into cashflow by adopting ICP standards that improve risk assessment, reduce costs and increase savings. This gives building owners and investors confidence that expected returns will materialise. At the recent investor days in Brussels, Annie Degen, special adviser at the United Nations Environment Programme Finance Initiative (UNEP FI), referred to the organisation’s current work on a standardised energy services contract for utilities.
The Energy Efficiency Financial Institutions Group (EEFIG), an expert group set up by the European Commission and UNEP FI, cites the necessity to build investor confidence in energy efficiency, through the “launch of an EU-wide initiative to develop a common set of procedures and standards for energy efficiency and buildings refurbishment underwriting for both debt and equity investments”.
Transforming the market
ICP Europe started up just one year ago, with a single goal: standardising the processes of energy efficiency renovation to lower the performance risk of investing in energy renovation projects. ICP Europe is a sister project to the ICP launched five years ago in the USA by the Environmental Defense Fund, an international non-profit organisation.
The ICP approach of standardising process and procedure (versus creating new standards in an already overcrowded market) has been enthusiastically received in Europe, where a plethora of different building standards and regulations causes headaches for product manufacturers, investors and policymakers alike.
The ICP Europe system unifies existing regulation and best practice – and has the potential to integrate the fragmented renovation market. ICP’s Investor Ready Energy Efficiency (IREE) certified projects are accredited against industry standards and best practices, which reduces transaction costs and increases confidence in savings to help engage private capital and scale up energy efficiency investments globally.
Senior European Commission officials are upbeat about the project’s prospects. According to Vincent Berrutto, head of the energy unit at the European Commission’s Executive Agency for Small and Medium-sized Enterprises (EASME), “it has the potential to transform the market”. ICP Europe’s Steering Group has attracted heavy hitters including the UK’s Green Investment Bank, the Department of Energy and Climate Change, ING Bank and Siemens.
Utilities engage with ICP
In January 2016, the New Jersey Board of Public Utilities (BPU) in the USA announced enhanced financial incentives for commercial and industrial businesses that adopt the ICP protocols in energy efficiency improvement projects. This makes New Jersey the first US state to bring ICP’s market-based approach to energy efficiency into an existing state incentive programme.
“By incorporating the ICP protocols, participants will receive greater financial incentives as well as peace of mind as their projects achieve energy savings that justify their upfront investments,” said Richard Mroz, president of the New Jersey BPU.
ICP Europe then received a boost in March, when EDF joined the ICP Europe steering committee, represented by Laurent Kraif, chief executive of EDF subsidiary Perfesco.
“I am very excited to represent EDF on the Investor Confidence Project Europe Steering Group. We believe that our customers and the European community need a dramatic increase in high-quality energy efficiency renovation projects. To do this we need to improve savings, increase investment and collect and use better project data. ICP Europe is providing the tools and guidance that could facilitate many of these changes in the marketplace and I look forward to adding our insights into their operations and plans,” said Kraif.
Finally, in April this year, ICP in the USA announced that Pacific Gas and Electric (PG&E), the largest utility in the country, will be providing interest-free loans for energy efficiency retrofits in existing buildings that meet the ICP’s IREE certification.
The interest-free loans will be provided under PG&E’s existing On-Bill Financing programme, and will give qualifying energy efficiency projects in existing commercial and multi-family buildings access to up to $100,000 at zero per cent interest.
Panama Bartholomy, director, ICP Europe