The Private Finance for Energy Efficiency (PF4EE) instrument, launched in 2014, is a joint agreement between the European Investment Bank and the European Commission that aims to address the limited access to adequate and affordable commercial financing for energy efficiency investments. The instrument targets projects that support the implementation of National Energy Efficiency Action Plans (NEEAPs) and other energy efficiency programmes in EU Member States.
The instrument is managed by the EIB, one of the largest lenders for investment in climate-related actions worldwide, and funded by the Programme for the Environment and Climate Action (LIFE Programme) under the Directorate General for Climate Action. Through the LIFE Programme, the Commission has committed EUR 80 million to fund the instrument’s credit risk protection and expert support services in 2014-2017. The EIB will leverage this amount, to make a minimum of EUR 480 million available in long term financing.
The PF4EE will combine this EIB lending to financial intermediaries with protection against losses associated with energy efficiency loans. In so doing, it will help intermediary banks in Member States to develop and offer specific loan programmes targeted at energy efficiency projects. The financial instrument will also provide support and technical assistance aimed at effectively deploying the PF4EE Instrument by building the technical capacity of financial intermediaries.
In this way, the PF4EE aims to make energy efficiency lending a more sustainable activity within European financial institutions, by looking at the energy efficiency sector as a distinct market segment. Another core objective of the instrument is to make debt financing more available to eligible energy efficiency investments. To achieve this, it will provide portfolio-based credit risk protection through a Risk Sharing Facility (RSF), in addition to long-term financing from the EIB (an EIB Loan for Energy Efficiency) and an Expert Support Facility.
The RSF is designed to mitigate the credit risk faced by financial intermediaries when lending to individuals or companies undertaking eligible energy efficiency investments. By using cash collateral deposited in a collateral account, the RSF will cover a set percentage of the losses incurring in loans included in an energy efficiency investment portfolio. The EIB Loan for Energy Efficiency may complement the RSF. These EIB loans will be provided at the EIB’s own risk, at competitive rates and with long maturities, and will be on-lent to the final recipients to further improve their financing conditions. Finally, the Expert Support Facility will provide expert support services to financial intermediaries, to improve their understanding of energy efficiency investment and help them create suitable financial products tailored towards energy efficiency.
There are a number of criteria that financial intermediaries participating in PF4EE implementation will have to comply with. They will have to be a private sector financial institution or operate as such on the market, be authorised to carry out lending or leasing activities, and be established and operating in a Member State. They will also need to demonstrate that they have the operational capacity to manage the PF4EE instrument and to reach the final recipients targeted by the instrument. The financial intermediaries will also need to have a sound financial standing with a stable long-term outlook and robust credit risk assessment and rating policies, procedures and systems, among other requirements.
No more than one financial intermediary can be selected to distribute the PF4EE Instrument per Member State and priority will be given to intermediaries proposing to operate where energy efficiency investment needs are the greatest. Priority will also be given where the use of loan finance for energy efficiency is under-developed and the capacity to take up loans by final recipients is deemed low.
The target final recipients for the PF4EE instrument will be private investors in Member States investing in projects that enhance energy efficiency. These beneficiaries could include SMEs and private individuals (e.g. householders or hotel owners). Moreover, small municipalities or other public sector bodies undertaking small energy efficiency investments, capable of using energy savings to repay up-front borrowing, could benefit from loan programmes. The size of the energy efficiency loans to be provided to the final beneficiaries could range from EUR 40,000 up to EUR 5 million and higher in exceptional cases.
An example of a project financed under the PF4EE is a EUR 50 million agreement signed between the EIB and Banco Santander in Spain. This agreement is a typical PF4EE agreement and combines the instrument’s three core elements: the first is a loan to improve the funding conditions of energy efficiency investments financed by Santander. The second component partially covers potential losses that Santander may incur, and the third will strengthen Santander’s energy efficiency lending capacity by passing on technical and financial experience gained from similar schemes elsewhere in Europe.
The EUR 50 million EIB loan will finance energy efficiency improvements in hotels and, to a lesser extent, other tourist accommodations across Spain. The risk protection will cover 80 % of Santander’s potential losses under these loans up to a maximum agreed amount. Santander will also benefit from the EIB’s technical and financial expertise the start of the operation in planning marketing activities and in identifying and appraising energy efficiency investments.
The benefits of this agreement will extend beyond improvements to the energy efficiency and, consequently, the competitiveness of the Spanish hotel sector. By supporting national and European energy efficiency targets in this way, the PF4EE will help to underpin the EU’s policy objectives of adapting to and mitigating the effects of climate change and will improve the security of energy supply on the European market.
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