The EU is targeting billions of euro of investment in building efficiency. Their challenge is to convince private investors to unlock trillions of euros of capital which is being earmarked for this sector.
The EU’s ‘Energy Union’ strategy aims to cut the bloc’s dependence on energy imports and fight climate change.
As part of this strategy the has pinpointed building renovation as a priority. It recognises that 75% of the EU’s building stock is inefficient and buildings account for 40% of the EU’s primary energy demand. Also, energy efficient renovation can help to the economy through local jobs, increase house prices, and cut household bills.
Increasing the life and value of public buildings through renovation should also be attractive to municipalities but, despite the multiple benefits, such as reducing energy poverty, renovation rates in the EU are just 1% a year.
Access for finance
A major obstacle to getting renovation rates higher is access to finance, which is an issue for both businesses and households. Private investment in energy-efficient buildings renovation must increase five-fold by 2030, according to a group set up by the European Commission and the United Nations Environment Programme (UNEP) Finance Initiative.
The Energy Efficiency Financial Institutions Group (EEFIG) has called for a “historic level of public-private collaboration” to bridge the funding gap for energy savings projects.
Dutch bank Rabobank is now offering 0.5% lower interest rates for the most energy efficient homes. The Dutch government offers banks a tax deduction on their returns on green investment.
Triados Bank, which has branches in the Netherlands, Belgium, Germany, Spain and the UK, will reduce interest rates on existing loans if building energy performance improves.
ING has also launched building renovation loan scheme worth up to €50,000 at 1.95% over ten years.
The EU wants to unlock the capital held by institutional investors such as pension funds and insurance funds. There is growing interest from these investors in energy efficiency project. They recognise the potential of a long-term, low-risk project with stable returns.
After the landmark success of the United Nations’ Paris Agreement on climate change, members of funds are increasing pressure on investors to find green projects.
Danish Pension Fund PKA has set a target of investing €3.5 billion, 10% of their €35 billion capital, into efficiency and renewables by 2020.
PKA is chairing the Institutional Investors Group on Climate Change, a forum for collaboration on climate change between investors. IIGCC members represent €18 trillion in potential investment.
As institutional investors traditionally back larger projects, such as infrastructure, experts are looking for methods to aggregate a number or pool of smaller projects into a large investment opportunity will make it easier to raise finance. Public money can be used to de-risk such pools through loan guarantees. Such guarantees can incentivise much larger amounts of private capital.