Financing energy efficiency in buildings: an international review of best practice and innovation
ACE Research, in partnership with Joanne Wade, was commissioned by the European Council for an Energy Efficient Economy (eceee) and the French Environment and Energy Management Agency (ADEME) to identify and review a wide range of energy efficiency finance schemes from around the world for the World Energy Council (WEC). The research is part of a suite which informed 2013’s World Energy Congress in Daegu, South Korea, this October.
You can download the full report including national case studies here. An overview of what we addressed in the review follows:
Energy savings are among the fastest, highest impacting and most cost-effective ways of reducing greenhouse gases emissions. Low cost energy efficiency measures have long been regarded as the ‘low-hanging fruit’ in delivering a clean energy economy.
However, the groundswell of general interest observed does not in itself produce specific, bankable energy efficiency investment opportunities without other factors being in place. Even with high and volatile energy prices, energy security issues and awareness of climate change policy drivers, there is a mixed picture of actual demand for energy efficiency from both private and public sector clients. Despite the proven cost-effective opportunity to reduce energy consumption, a significant proportion of the energy efficiency improvement potential is not being realised.
A key reason for this relates to the financing of energy efficiency. Barriers to financing mean that, in the past, energy efficiency has not been able to attract significant amounts of private capital.
These barriers take a range of well-recognised forms. The Buildings Performance Institute Europe reported in 20101 that information failure, high subsidies, lack of technical expertise, uncertainty over savings, and externalities still characterise the energy efficiency market, while ‘split incentives’ discourage both building owners and occupiers from investing in energy efficiency measures if direct benefits are not perceived. Financial barriers include the initial cost barrier, high transaction costs, long payback time, and risk exposure. Furthermore, lack of knowledge among finance providers about energy efficiency prevents customers from accessing capital, and the absence of standardised measurement and verification practice further increases transaction costs.
To examine these and other barriers in greater detail, eight case study schemes – from a range of different economies and contexts, targeting different sectors and employing different financing methods – were selected for systematic evaluation and to understand how such barriers are addressed in a wide range of different contexts – covering schemes in China, Estonia, Germany, India, Japan, Kenya, New Zealand and the USA.
The analysis of the case study finance schemes encompasses a comprehensive barrier analysis, highlighting the ways in which schemes have addressed and overcome typical barriers to energy efficiency take-up and finance provision. The barriers identified can be identified as falling into four distinct groups: Finance; Institutions and Stakeholders; Measures and Buildings; and Consumers and End-Users.
Given the diversity of the case studies assessed, and the breadth of the World Energy Council’s membership, recommendations for decision-makers and practitioners in energy efficiency finance are necessarily non-prescriptive. In order to accommodate this breadth and diversity, we highlight broad contextual considerations – in addition to the barriers analysed – that must be taken into account in the design and operation of any finance scheme. These relate to the nature of: political, legal and institutional contexts; social and demographic context; economic and industrial contexts; the built environment; and climate and geography.
To facilitate systematic thought about finance scheme design and operation for a wide variety of different purposes and in a broad range of contexts, we provide an energy efficiency finance scheme ‘decisions map’. This takes the form of a matrix containing conclusions and recommendations for each of the main barriers, mapped out across each of the areas of context. It illustrates the importance of a thorough approach to energy efficiency finance which builds on the vast wealth of experience already accumulated from around the world, and is designed to facilitate this type of approach.
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