Map of Structured Financial Solutions for Citizen Financing Schemes for Energy Efficiency:

Under the Citizee project, Energinvest has developed a guidance document aiming at helping CitizEE Pilot Regions to select a suitable Public Financing Instrument (PFI) to be set-up to support the development of their Financing Scheme for Energy Efficient Buildings. (For further information please see also Map of Structured Financial Solutions for CFs4EE Financing Scheme to be found under https://www.citizee.eu/results/). 

Using this guidance document, the CitizEE Pilot Regions were invited to fill-in a respective template to evaluate and select on appropriate financing solutions. The structure and content of the template includes several key steps, which should be followed when evaluating and selecting the Structured Financial Solutions that could best meet the needs of the four Pilot Cases.

Key steps to take when evaluating and selecting eligible Structured Financial Solutions:

The following figure presents the four main steps, CitizEE Pilot Regions were asked to apply when evaluation and selecting eligible Structured Financial Solutions:

Following the four main steps, all CitizEE Pilot Regions were able to evaluate and select eligible Structured Financial Solutions. As the evaluation and selection of suitable Structured Financing Solutions highly depend on the local context, the type of buildings, targeted final recipients and the type of implementation model and the Citizen funding options, the chosen options differ between the four Pilot Regions.

The comprehensive outcomes of the evaluation and selection of suitable Structured Financing Solutions can be found in the related report.

The report is available for free download here.

Methodology used to develop the Structured Financial Solutions Map:

In order to develop the Structured Financial Solution Map, a first desk research was conducted by which the team collected, compiled and analyzed the documentation and reports available on Public Financing Instruments (PFIs). A benchmark of these PFIs was then carried out in order to identify the most effective and the most adapted to the situation of the CitizEE Pilot Regions.

In addition to that, the study considered the main outcomes of a former analysis on the set-up of Investment Platforms supported by the European Fund for Strategic Investments. In the frame of a last step, the study has analyzed how financing instruments could be structured within the specific architecture of an Investment Platform, including Citizen Funding, to develop a Structured Financing Map.

Study-result – eight different Structured Finance Solutions:

The main result of the study is a Map of Structured Financial Solutions for Citizen Financing Schemes for Energy Efficiency. It mainly presents a series of eight different Structured Finance Solutions that meet the potential needs of the Pilot Regions. These solutions include the leverage of citizen financing, which can be used by the Pilot Regions according to their market conditions, the main financial barriers and market failures. Moreover, these solutions reflect the policy objectives within these Pilot Regions.

Donwload the full report here

Energy related barriers that were identified are:

• The rules for public procurement of energy efficiency (EE) projects, in particular because those rules foresee mandatory tendering and may hinder the development of specific selection and awarding criteria,
• Lack of development and completion of national legislation, e.g. the Energy Strategy of the Republic of Croatia is still not finalised and the amendment for the Law on Energy from Renewable Sources in Lithuania, where primary general principles and operating conditions for energy communities are introduced, is not yet in force,
• The energy price and the energy of self-consumption for prosumers is too low so new business models are not stimulated.

Investment related barriers that were identified are:

• Several Investment limitations, both, for individuals that want to become investors as well as for the upscaling of campaigns,
• The Eurostat Regulation on ESA neutrality, which may be a problematic aspect when it comes to a very high level of ambition in Energy Performance Contracts,
• The law on Energy performance contracting (EPC) leads to problems, e.g. in Belgium EPC is seen as financial lease, which is prohibited,
• There is a lack of business cases for in depth renovations (with payback times that are 30 years or higher),
• Lack of development of the Law on Consumer Financing and the creation of a basic legal framework that facilitates crowdfunding models,
• High bank and card processing transaction fees and the high price of the loans in some pilot regions.
• Development of an investment platform according to European Union law will be challenging/problematic for some regions.

However, a barrier analysis, as important as it is, is not likely to draw the whole picture of the legal and regulatory point of view. For the development of investment platforms in the pilot regions and the success of CitizEE it is also crucial to look at the opportunities that exist but may not have been considered to this point. It is therefore necessary to give an overview of the relevant legal framework on European level to get an impression where there might be aspects that are worth to be analysed even closer. At this stage of development of the pilot cases a certain flexibility is present, which can be used to make steps in the most promising direction.

The most important aspects of the relevant European legal framework are:

• The Clean Energy Package, i.e. Energy Efficiency Directive, Energy Performance in Buildings Directive, provisions for energy communities and for individual or collective self-consumption,
• The Crowdfunding Service Providers Regulation,
• The upcoming InvestEU Programme.

Another aspect that has to be kept in mind while reading the following report is the existence of the two levels of legislation. There is the European and the national/regional level, which both interfere with each other through a dynamic interdependency.1 That means, on the one hand, the national legislation can be seen as the initial point for each of the pilot regions, as this legislation is the more concrete and more specific set of rules that has to be considered while developing the investment platform. On the other hand, the European legislation affects the national legislation as it is on a superior level and therefore national legislation must not contradict European legislation. But then again, the European legislation (as long as it is not a Regulation, which is directly applicable in all Member States) has to be implemented by the Member States and therefore transformed into national law. Here, a certain discretion exists and each Member State is allowed to create its own legislation as long as it is in line with the European set of rules. The implementation is likely to follow the already existing national legislation as far as it is allowed by European legislation. Thus, if there are changes in one level it is most likely that the other level will change as well, which then again may affect the other level.

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Unlocking financing for smaller and/or riskier projects is precisely the objective of the European Fund for Strategic Investments (EFSI), the financial pillar of the Investment Plan for Europe. EFSI was designed in 2015 to address the major investment gap resulted from the outbreak of the global financial and the European sovereign debt crises. EFSI came to complement existing EU financing instruments and was aimed at mobilising significant additional public and private investment, worth €500 billions for 2020 in crucial sectors of the EU’s economy that suffering from market failures and sub-optimal investment situations by providing first loss guarantees from the EU budget. The specificity of EFSI is based on this EU guarantee granted to the European Investment Bank (EIB) Group that allows to increase the volume of higher risk projects supported by EIB Group financing operations and is intended to provide additionality of investment by addressing market failures and suboptimal investment conditions, i.e. funding projects that would otherwise not be financed or not to the same extent. Thanks to the EU guarantee, the EIB Group can expand its financing and investment portfolio to those projects with a higher risk profile (namely EIB Group “Special Activities”) and in turn, the EIB intervention allows other public and/or private investors to join (process defined as ‘crowding in’) and further multiply the overall funding of operations that receive EFSI financing.

Thanks to the EFSI funding, an investment platform can therefore be set up to provide financial products (loans, equity, guarantees) to projects that are economically viable (either by generating revenues and/or saving costs) but which are too small and/or too risky to be financed by private investors only and thus use public financing to attract and crowd-in more easily private investors, with a view to fill market gaps and finance groups of smaller and riskier projects. In addition to EFSI funding, investment platforms can also combine funding from other EU funds and financial instruments, in particular the European Structural and Investment Funds (ESI Funds) as specifically promoted by the EFSI regulation in a view to contribute to the financing of projects receiving EFSI support and by there increase the crowding in effect of the Investment Platform.

It is to be noted that any public or private institution or a group of institutions (so-called “Sponsors” or “Project promoters”) can set up such an EFSI-backed investment platform. This can also include creating new forms of cooperation between key financial organizations like National Promotional Banks/Institutions (NPBIs), commercial banks, investment funds and other investors and stakeholders. Another particularity of EFSI-backed investment Platforms is their flexibility in terms of legal form and financing structure which can be determined according to the needs of the projects and the interests of the co-investors. According to the EFSI regulation, they can be “special purpose vehicles, managed accounts, contract-based co-financing or risk sharing arrangements or arrangements established by any other means by which entities channel a financial contribution in order to finance a number of investment projects”. This flexibility allows investment platforms to adapt to a large range of market situations, co-investors and policy objectives.

As of the end of june 2019, some 51 investment platforms have already been approved to receive EFSI-backing, representing nearly EUR 6bn of EFSI financing approvals, for more than EUR 40bn of investments expected to be mobilized.

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It is to be noted that the EFSI initiative will soon reach the end of its timeframe and will be replaced by the new InvestEU framework as a successor of EFSI. Apart from the Lithuanian pilot region that has already succeeded to obtain approval for an EFSI-backed Investment Platform and will be signed within the current timeframe, according to discussions with the European Investment Bank, the remaining timeframe will most probably not allow other CitizEE pilot regions to obtain an ESFI approval for their projects. Remaining pilot projects will therefore fall under the InvestEU framework, which, although based on the success of the EFSI initiative, includes a number of significant developments that will need to be analyzed in more detail as soon as the regulation establishing InvestEU will enter into force. The Master Plan should therefore be reviewed regularly (at least at each stage of development), in order to align it with the most recent information. Following consultations with European Investment Bank (EIB) and European Investment Advisory Hub (EIAH), it is assumed that in the next Multi-Annual Framework (2021-2027):

• EU-backed guarantee will remain the cornerstone of InvestEU program;
• Financial Instruments and Investment Platforms will remain strategic tools within InvestEU program to support public and private investment in Europe;
• European Investment Bank Group (EIB) will remain the main operator for InvestEU program;
• The cooperation between EIB Group and National Promotional Banks and Institutions (NPBIs) in the implementation of InvestEU will be strengthened as well as the complementarity between InvestEU and ESIF in the implementation of Financial Instruments.

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European Commissioner Vytenis Andriukaitis said: “It is vital that we bring our homes and businesses into the 21^st century when it comes to their carbon footprint. I am very pleased that the Juncker Plan is supporting Lithuania’s first energy efficiency investment platform. Not only will the projects financed by this platform help Lithuania meet its sustainability objectives, but consumers will see a drop in their energy bills. A win-win.”

“As shown by the EIB’s previous experience, in particular through the JESSICA initiative in Lithuania, there is so much to gain from energy efficiency,” said EIB Vice President Alexander Stubb. “We often don’t realise it, but isolating our buildings, or using more efficient lighting, can make a huge difference to our use of energy. I feel that setting up this platform will not only have a substantial impact on people’s lives and their energy bills, but will also give visibility to an important issue in the current climate debate.”

“We are delighted to be in a partnership with the European Investment Bank in order to support energy efficiency investment platform. VIPA invites all legal entities to join energy efficiency project implementation in Lithuania as well as to apply for energy efficiency investment platform loans designed for increasing energy efficiency and to become prosumer” said Gvidas Dargužas, Chief Executive Officer of VIPA.

The establishment of the energy efficiency investment platform aligns with the policy priorities of the Lithuanian government in terms of energy efficiency and sustainability. This project falls partly under the Smart Finance for Smart Buildings (“SFSB”) Initiative, a joint initiative of the EIB Group and the European Commission (EC) aiming at supporting Energy Efficiency investments in buildings.

Background information

The European Investment Bank (EIB) is the long-term lending institution of the European Union, owned by its Member States. It makes long-term finance available for sound investment in order to contribute towards EU policy goals. Over the last 5 years, the EIB made available over €1.1 billion in credit lines for SMEs as well as loans to the energy, transport and service sectors in Lithuania.

The Public Investment Development Agency (VIPA) is a state-owned National Promotional Institution (NPI) which provide loans, guarantees for repayable investments, implementation of similar measures for urban development, optimization of public infrastructure, and energy efficiency improvements in Lithuania. VIPA activities are financed by the European Union, national, and other financial assistance programmes and financing sources.

This agreement has been made possible thanks to the support of the European Fund for Strategic Investments (EFSI). The EFSI is the pillar of the Investment Plan for Europe, known as the Juncker Plan. Its support increases the EIB Group’s capacity to finance investment projects that, in line with the Juncker Plan’s criteria, fosters the EU competitiveness and create new jobs. The Juncker Plan focuses on boosting investment to generate jobs and growth by making smarter use of new and existing financial resources, removing obstacles to investment, and providing visibility and technical assistance to investment projects.

The EFSI provides first loss guarantees, enabling the EIB to invest in more projects that often come with greater risks. The projects and agreements approved for financing under EFSI are expected to mobilize €433.2 billion in investments. The Plan is currently supporting 972,000 SMEs in the 28 Member States. More information on the results of the Investment Plan for Europe is available here.

Source: European Commission https://ec.europa.eu/commission/presscorner/detail/en/IP_19_6066