Global warming is spinning out of our control. This gruesome reality has recently triggered ambitious international policy frameworks like the Paris Agreement and the Sustainable Development Goals (SDGs). Even though we now know ‘where’ to go to save the world, figuring out ‘how’ to get there seems to be even more complex.
Both global frameworks attribute energy efficiency with a vital role in achieving a transition towards a sustainable, climate friendly energy system. However, the 2018 Energy Efficiency report by the International Energy Agency (IEA) shows, that, even though energy efficiency polices helped to prevent 12% more energy use worldwide between 2000 and 2017, much more action is needed to meet the Paris goals and the respective SDGs.
What are the main challenges in saving energy? Energy efficiency solutions are technologically diverse. There are for instance LEDs, pumps, heating generation and recovery systems, pressurized air applications, numerous insulation materials. Even though these solutions require relatively modest investment sums, financial institutions experience the handling of respective credit applications as rather complex. Relatively small project and hence credit volumes as well as a lack of standardization make it complicated and, in the end, rather expensive (transaction costs) to realistically assess project and credit risks. A banker is simply not an engineer. A real mind-boggling dilemma!
Still, saving energy is a good investment: The energy efficiency sector in Germany alone employs more than 600,000 people. This economic force could grow even stronger (also on a global scale) if the situation for financing energy efficiency projects would further improve. On a policy level, the German government’s steering committee for sustainability policies, the State Secretaries Committee for Sustainable Development, has recently decided to develop a sustainable finance strategy for Germany. Regarding energy efficiency, the German Federal Ministry for Economic Affairs and Energy has funded an ambitious and hands-on project to tackle the challenge from a market perspective: The project “ACE — Asset Class Energy Efficiency” aims at enabling financing institutions to create attractive, high-volume investment portfolios with yet diverse energy efficiency projects. The team consisted of the German Business Initiative for Energy Efficiency (DENEFF e. V.), the Climate Protection Agency of Baden-Wuerttemberg (KEA) and the University of Stuttgart (EEP). “With agile methods and a strict user-centric design approach we addressed real needs of real people”, explains Martin Bornholdt, DENEFF’s Managing Director.
The outcome of the innovation process showcases how to effectively bridge market gaps through digitalization: The online platform EFFINVEST (in German) offers market actors like small and medium sized enterprises an easy way to calculate profitability and standardized performance benchmarks for their energy efficiency project, covering six cross-sectional technologies. Furthermore, companies looking to finance their energy efficiency project with credit can directly send their benchmarked project portfolio to an attached financial partner. The latter receives the credit request in a bankable and easy to understand management summary.
“The Federal Ministry for Economic Affairs and Energy welcomes the outcome of this project as it has effectively and creatively addressed the complex obstacles of financing energy efficiency,” commends Stefan Besser, head of the ministries’ energy efficiency unit.
Or to put it in a nutshell: A banker doesn’t have to become an engineer to finance energy efficiency.
Author: Kai Philipp Schinck