Europe pushes green investment

EIB and EC put forward a plan to encourage local banks to support projects

Combined proposals from the European Investment Bank (EIB) and the European Commission hope to encourage more private investment for schemes that contribute to reducing energy use and conserve natural assets.

The Private Finance for Energy Efficiency (PF4EE) aims to encourage local banks in many member state countries, to increase the amount they lend to energy efficiency, supporting national project plans.

A number of measures have been put forward to facilitate this ambition, including providing long-term low-cost loans and credit risk protection to financial intermediaries, as well as improving lending expertise in the sector.

The EIB and the Commission say they will provide €80 million for credit risk protection of energy efficiency loan portfolios, and the support of technical experts.

No more than one financial intermediary will be chosen from an individual country, to broaden the accessibility of the proposal across the EU.

Priority will be given to the bids where energy efficiency investment are needed the most and where there is a lack of available finance for more proficiency in energy resources.

The EIB and Commission partnership has also put forward the new Natural Capital Financing Facility (NCFF), which they will support with €125 million, looking to improve financial investments for several climate sensitive areas.

These include flood protection, rainwater recycling, programs to protect forests, reducing water and soil pollution, biodiversity offsets, and to boost eco-tourism.

The scheme aims to unlock the potential for long-term private and sector investment in eco projects, which are currently mostly viewed by investors as not being financially viable.

“We in cooperation over these schemes with two parts of the Commission, and we recognise the potential that exists for facilitating broader investments to support energy efficiency schemes,” said Richard Willis, a spokesperson for EIB.

“The potential we hope will entice local partners and banks to participate in the funding of new schemes. In arriving at the details that we have announced, this is a process that we have been through before in different sectors, in that we evaluate what is needed, as there is a risk element involved,” he added.

The EIB has around 400 sector specialists, which include engineers and economists, who will be consulted on just which areas investments need to be made, such as those outlined as part of the NCFF.

Initially there will be a couple of projects rolled out over the proposed three to four year pilot scheme phase, which will also receive financial support, with  €10 million allocated to a technical assistance programme building technical understanding.

Willis said that the EIB has shown previously the necessary leadership to understand sectors, and pointed to the fact that they have invested in wind and solar projects, which private investors have not always shown much enthusiasm for.

The EIB can only fund up 50 percent of an individual project, but they are confident they can attract investment partners for fresh environmental initiatives.

“There are pension funds and banks out there that we believe will be interested in climate change projects, as we provide the correct level of due diligence, and choose projects that have technological sense. We have included credit protection in the PF4EE, as we realize the risks involved.” Willis added.

Martin Schoenberg, head of policy for Climate Change Capital, an environmental asset management and advisory business, said that what has been put forward is part of the European Investment Plan, and he would welcome the focus on national climate change programmes. “That is what the investment plan should be about, investments for the next 20 years will be important to achieve the EU‘s 2030 targets,” he added.

“The commercial banks are the targets to provide the capital for these schemes rather than the investment community, but that is a sensible way of doing things at the moment. The focus is currently mostly on the debt, and not on equity ownership.”

If this situation is to change for prospective investors for climate change projects, Schoenberg argued that there are going to have to be broadly more influential carbon free designs proposed.

There will also have to be a stronger emphasis on how to aggregate the equity and the debt, in a project for investors to be interested.

Additionally he said an infrastructural plan at the national level is something that investors would like to see in the future. This would clarify just how significant the green energy markets are going to be, between each individual EU member state.

The EIB has been one of the strongest advocates of climate change investment; so far they have committed €19 billion for climate related projects, around 25 percent of the bank’s overall total lending.

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