The energy transition: an investment opportunity for cities and regions

An increasing number of large scale sustainable energy projects from public authorities across Europe are demonstrating the investment opportunity for cities and regions in the energy transition. From Croatia to Ireland, projects are leveraging local investment, by combining European funding with innovative business models, and proving that energy efficiency investment is a win-win, for citizens and local governments alike.  

 “Pushing the market is about trust and confidence. Having the regional authority on board really reassures people,” said Alice Morcrette, director at the Regional Public Service for Energy Efficiency, a one-stop-shop home renovation service provided by the Region Hauts-de-France, France.  Morcrette was speaking at the recent Energy Efficiency Finance Marketplace in Brussels, one of a series of Sustainable Energy Investment Forums taking place across Europe to showcase best practices in developing investment projects led by local and regional authorities.

The service headed up by Morcrette, Picardie Pass Renovation, blends €8 million from Picardie Regional Council and a €35.5 million European Investment Bank (EIB) loan into a dedicated fund to finance home improvement works with consequent 40-75% reductions in energy consumption. Homeowners repay this advance thanks to a long term loan (25 years) for which monthly payments are in line with monthly energy savings generated. The project will create thousands of skilled construction jobs throughout the region, encompassing 40 local authorities. “Picardie Regional Council is the key aggregator for this project, and this scale of aggregation becomes interesting for investors and energy companies,” said Morcrette. 

“Local and regional authorities have realised that the energy transition is an investment opportunity,” explained Julije Domac, director of REGEA (North-West Croatia Energy Agency), president of energy agency association FEDARENE and a member of the Covenant of Mayors Board, who spoke during the opening session of the conference. “It is a driving force for innovation, job opportunities, competitiveness and overall economic growth, bringing benefits for all.”

Financial engineering

REGEA is a key partner of the Newlight project, that received EU support for project development assistance under the EIB-ELENA facility (European Local Energy Assistance). Using the concept of energy performance contracting, this project will finance the modernization of public lighting systems with a planned investment of around €20 million. According to Domac: “The fact that we managed to aggregate investments in 57 cities and municipalities is really outstanding. This is a signal that sustainable energy investments are beyond politics – for Croatia and for Europe.”

More than one hundred bi-lateral meetings took place between the project promoters and local authorities during the year that it took to prepare the project, “a lot of discussions, arguments and clarifications” said Domac. Already, Newlight’s success has inspired a similar, but even bigger project, in Croatia’s capital Zagreb, with a planned investment of €60 million kickstarted with project development assistance from ELENA. 

But despite the tremendous potential highlighted by the thousands of plans developed in the framework of the Covenant of Mayors, too few cities and communities in Europe succeed in developing and scaling up investments, said Domac. “A key gap is the lack of capacity of public authorities to transform their long-term strategies into credible investment concepts. Public authorities face challenges in accessing the financial and legal expertise needed to collect additional data, develop an investment programme at scale, and to develop sufficiently mature financial strategies to gain access to different financing options,” he explained.  For example, some public authorities have dedicated teams for managing innovative financial instruments blending public and private investment [such as Mobilising Local Energy Investment-Project Development Assistance (MLEI-PDA)].

Bridging the gap

Energy agencies are helping to bridge this capacity gap for local authorities. “The activities of these energy agencies have evolved in recent years from raising awareness and project planning, to actively working with public authorities on project development and implementation,” said Domac. “They are becoming more involved with ensuring the bankability of investment projects, triggering investments in public authorities through the development of public-private partnerships and other third-party financing. They are trusted partners for the concrete implementation of projects.”

The changing role of energy agencies is exemplified by the Super Homes project, developed by Tipperary Energy Agency in Ireland.   The project aims at becoming the complete one stop shop for deep retrofit of homes in Ireland, with an investment target of €15 million by 2020.  The development of this new customer journey for deep renovation in Ireland is supported under the ELENA facility. Speaking at the Energy Efficiency Finance Marketplace, Tipperary Energy Agency CEO Paul Kenny said that the Super Homes project was directly inspired by the Picardie Pass Rénovation (SPEE) project.

To date the Super Homes project has delivered deep retrofits for 84 homes and is working at scaling up these investments. Kenny also said the agency is partnering with a large utility in order to roll out the project at scale, and emphasized marketing the non-energy benefits of retrofit, including increased asset value, to homeowners considering deep renovation.  

Breaking new ground

Silvio De Nigris works in the sustainable energy sector of the Region of Piedmont in Italy, and he managed the 2020Together project on behalf of the region. With initial financing of €490,000 from the Mobilising Local Energy Investment facility, 2020Together upgraded the energy efficiency of buildings and public lighting in local municipalities with an investment  of €12.5 million.

De Nigris said: “The Metropolitan City of Torino and the Piemonte Region are territorial coordinators of the Covenant of Mayors and supported the SECAPs [Sustainable Energy and Climate Action Plans] drafting for several municipalities. For implementation, the municipalities and both the territorial coordinators had to develop the project idea. Lack of public budget and investments necessitated innovative approaches in the tendering and contracting procedures. Energy Performance Contracting (EPC) with third party financing was selected as the best choice.” 

The financial complexity of the 2020Together project has broken new ground, triggering institutional reform and legislative change. De Nigris said: “It was not built in a day! It was necessary to build in-house capacity to prepare the project - and that capacity had to be built further even after the project approval. Getting in touch with other similar projects was important to fine tune the activities and the approach. The whole application and submission procedure was very hard.”

Despite these challenges, De Nigris is deservedly upbeat about the project, and its potential for replication. “2020Together project has been the most important project I've managed so far. We have been successful, even though we faced a lot of constraints. But we have learned a lot - mainly from a technical point of view, getting deeply into EPC schemes, then also about PPP [public private partnerships] procedures in public procurement. Finally, the project showed that the networks of small and medium municipalities based on joint projects can be built - but requires strong coordination and political support.”

Accelerating public and private investment in sustainable energy is key to meeting the objectives of the Energy Union, and under the Smart Finance for Smart Buildings initiative, a new financial instrument aimed at unlocking a total of €10 billion in public and private funds has recently been approved by the EIB. “We need to see more innovative financing mechanisms - not relying solely on public subsidies or pure grant financing but diversifying the sources of financing through an effective blend of European, public and private funds, thus allowing municipalities to overcome the lack of financial resources,” said Domac. “The local, regional, national and European levels must collaborate as partners in breaking the barriers to the implementation of sustainable energy policies.”

• To learn more about these and other projects, go to the Sustainable Energy Investment Forums homepage.