FINERPOL Dissemination Event, Plymouth UK. 3rd Nov. 2016

Introduction to FINERPOL The Financial Instruments for Energy Renovation Policies (FINERPOL) Project aims to increase the rate of refurbishment of buildings to increase their energy efficiency, by improving access to investment finance. It is supported by European Regional Development Funding provided through the Interreg Europe Programme [hyperlink]. Buildings account for 40% of energy use and 36% of CO 2 emissions in the European Union with older buildings being up to 20 times less energy efficient than new builds. Currently about 35% of EU buildings are over 50 years old (more info here). Increasing investment in energy efficiency and renewable energy for buildings is a major challenge to meet European Union and UK targets to reduce carbon emissions. However, austerity measures and a more risk-averse investment climate have slowed the rate of investment considerably. FINERPOL partners aim to develop regional Action Plans to overcome these barriers, making use of EU funds, and national and other sources as appropriate, to attract investment finance from a range of sources for energy efficiency renovations. For more information about FINERPOL, visit our webpage

Project partners

The partnership is led by the Extremadura Energy Agency (Agenex), Spain and also includes: 

General Direction of Industry, Energy and Mines, Extremadura Regional Government, Spain

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Plymouth City Council, UK

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Western Macedonia Region, Greece

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City of Prague, Czech Republic

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University Centre for Energy Efficient Buildings, Czech Technical University in Prague, Czech Republic

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Climate Protection and Energy Agency of Baden Württemberg, Germany

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CEiiA – Intelligence in Innovation, Innovation Centre, Portugal

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Autonomous Province of Trento, Italy

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FINERPOL Dissemination Event, Plymouth. Report of workshop, University of Plymouth. 3rd Nov 2016

Decision making information In a workshop setting involving the FINERPOL stakeholders, key decision-making information regarding energy efficiency investments was identified. Financial Core metrics were financial, comprising: Payback period; Monthly economic savings; Levelised cost (€/kWhr saved). Other financial metrics identified were: Cost of project , IRR, NPV, Loan Fund interest rate (cost of finance), Cost of money for the Fund and for the projects. Project information Practical project information is an important factor for decision-makers, in part because of potential disruption to day to day operations or to residents. These include the duration of implementation works and the lifespan of the measures. Also of importance are the degree to which the project can help to deliver wider objectives, especially in relation to energy saving, reducing carbon emissions, and increasing renewable energy production. Risks Closely related to core financial information was information regarding risks. Whilst there are technical risks, such as legal (permits etc), and technological (e.g. is the technology reliable?)? These all ultimately have financial implications and it is where the financial risk lie that is critical.

What are IRR and NPV? Internal rate of return (IRR) is a metric used in capital budgeting measuring the profitability of potential investments. Internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. IRR calculations rely on the same formula as NPV does. Read more: Internal Rate Of Return - IRR Definition | Investopedia http://www.investopedia.com/terms/i/irr.asp#ix zz4SiKQmh00

Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyse the profitability of a projected investment or project Read more: Net Present Value - NPV Definition | Investopedia http://www.investopedia.com/terms/n/npv.asp #ixzz4SiL4WrNQ

Institutional and technological:     

What is the legal environment: permits etc? What is the institutional structure: SPV (Special Purpose Vehicle etc)? What is the experience with this type of project? Unique? Common? Technological/product risks – perhaps managed through certified standards, e.g. ICP (see over…) Legal constraints and risks

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 Landlord/tenant dilemma – who is the beneficiary? Financial:   

What is the investment product: Loan; Guarantee; Equity, Grant. What is the mix? Who holds the risk? What is the share of risk between provider and beneficiary?

Investor Confidence Project Europe (ICP)

http://europe.eeperformance.org/

Social benefits It was also recognised that wider social benefits can be important, especially for public sector decision-makers. Some examples highlighted were:  

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Job creation Improved working environment, improving productivity and reducing days lost to illness (Q: what data is available to assess these benefits?). It was noted that research has shown that lighting quality affects wellbeing. Who is the investor, therefore having a stake in the financial benefits of the project? Public or Private?

Application This information will be used to refine the content of Best Practices fiches and to aid selection of Best Practices for inclusion in the FINERPOL database.

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CASE STUDIES

1. University of Plymouth Revolving Green Fund 1. Introduced in 2009, this ring-fenced budget of £374,000 was secured from HEFC for a specified programme of energy efficiency works, but on the basis that the funding could be recycled by the University. That is, as savings are made in energy costs as a result of works and equipment funded the loans from the fund are repaid and other loans made. Unusually, funds are not recycled back to the finance institution, but are held by the University which is able to fund its selfdetermined energy efficiency priorities. Schemes funded vary from lighting to boiler control – prioritisation is based on carbon saving per £ capital expenditure. Benefits. The availability of the fund avoids energy efficiency projects having to compete with other priorities, such as Health and Safety and Maintenance, for funding. Carbon savings (so far) are in the region of 1,200t CO2 pa, savings of £250k pa. Current lifetime savings are in the order of £3.4m

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Pipeline Committed Commissioned Fully Paid

- Projects in the design stage - Projects that have approval to proceed - Completed projects that are paying back the loan - Completed projects with the loan fully paid

Revolving Green Fund 2

Installation of a Campus Information and Control System, improving quality of data regarding energy use. The wealth of data gathered has been used to bring about cultural change both

£ £ £ £

Loan £ 93,778 132,186 597,097 320,706

Annual CO2 Tonnes £ Saved 185 £ 35,558 77 £ 23,076 527 £ 127,839 634 £ 121,488

Final Summary Cost Avoided Identified Cost Increase Identified Savings Open Cost Avoidance Opportunity Open Cost Saving Opportunity

Lifetime CO2 Tonnes £ Saved 1,993 £ 381,792 1,155 £ 346,147 8,077 £ 1,965,699 7,118 £ 1,392,357

£275,808 £26,416 -£41,600 £1,820 -£238,160

amongst University management and staff, and amongst students.

Dashboards provide visual displays of use data, allowing energy

Cost avoided; an increase in consumption has been identified, such as a boiler being put into manual operation, and a Profile Alert has been raise to inform the University to the increase. The University investigates, identifies an issue, makes changes and the consumption returns to normal. In this case an unnecessary consumption has been avoided. The assumption being that the fault would have gone undetected for 6 months in the case of gas and 12 months in the case of electricity.

use to be analysed for unexpected patterns of consumption. Inconsistencies trigger investigations, fault finding and rectification. Such faults may otherwise have gone undetected, or thought insignificant with little appreciation of the cumulative costs.   

Initial cost £967k Predicted savings of £162,000 pa / Carbon by 900t CO2 pa Potential benefits to the sector £16m pa / 81,000t CO2 pa

Identified cost increase; an increase in consumption is identified and a Profile Alert has been raised, however after investigation it is deemed to be an accepted increase and will carry on being so. E.g. a new extension / equipment added. Identified savings; an identified reduction in consumption which is believed to be permanent change, e.g. removing equipment from a building or the introduction of energy saving equipment. Open cost avoidance opportunity; an increase in consumption has been identified, a Profile Alert has been raised and a fault has been identified but is yet to be corrected, e.g. boiler left in manual operation. Open cost saving opportunity; a Profile Alert has been raised in order to highlight potential saving opportunities, e.g. CHP being activated.

Identified costs Avoided = £275808

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2. Salix Schools LED Plymouth Energy Community (PEC) is a community organisation founded in 2013, to change the way people buy, use and generate energy in and around Plymouth. PEC works with domestic and non-domestic customers on a wide range of different energy-related projects, including free solar PV installations on 28 Plymouth schools. Energy efficiency is a particular issue because high bills are problematic. Heating and lighting are common energy issues in schools and major contributors to high bills. However, schools suffer lack of investment and many school buildings are in need of comprehensive upgrading. Nevertheless, school leaders prioritise spending on other needs more directly connected to delivering day to day education. Aging Incandescent, Compact Fluorescent and Halogen lighting: o o o

Is expensive to run Is expensive to maintain/replace Offers a lower quality of light

Salix Finance Ltd. was established in 2004 as an independent not-for-profit company, funded by several Government departments. It provides 100% capital loans to the public sector for energy efficiency and CO2 reduction. Loans are 0% interest, and are repaid according to the savings made by the investments. The Salix Schools program makes loans to school projects which pay back within 8 years. Other projects must pay back within 5 years. Nationally, Salix has funded:

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over 14,400 projects

Case Study 1: Dunstone Primary School

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valued at £462.9 million

7 classes, 195 children

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Saved the public sector over £116 million pa / £1.7 billion over the projects' lifetime

151 light fittings replaced with LEDs

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This will reduce public sector CO2 emissions by 613,793t pa / 8.6 million tonnes over projects’ lifetime

Total project cost: £11,902 Annual saving: £1,798

Schools can access Salix independently, but in Plymouth to uptake has been low. This is due Annual carbon saving: 6.66tCO²

to:

Payback: 6.62 years

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Lack of awareness of Salix

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School leaders do not have the time to apply or manage projects

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Lack of confidence in running tenders / too many options / put off by salespeople

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Lack of skills in calculating cost/benefit (as the basis for assessing loan viability and repayment schedule).

Installed over 1 week during school holidays Case study 2: Yealmpstone Farm Primary School

PEC, as a trusted partner, helps schools to access LED lighting by acting as Project

7 classes, 204 children 276 light fittings replaced with LEDs

Developer: Total project cost: £21,784 •

Applying for Salix loans on behalf of school

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Arranging for local installers to tender and advise schools on lighting products

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Providing template contracts

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Coordinating installations

Annual saving: £3,825 Annual carbon saving: 13.86tCO² Payback: 5.7 years Installed over 10 days during school holidays

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3. Solar share offer Plymouth Energy Community (PEC) raised finance from the public to install renewable energy generation (solar PV panels) in the city, mostly on the roofs of city schools. The government’s Feed In Tariff, which provided a 20 year contract at a guaranteed price enabled the creation of an investment product capable of delivering a return to investors of 6% pa. This was a highly attractive investment option for savers, and £1.45 million has been raised in community share offers from 319 investors. This has been matched by £1m of finance, much of it from the city Council at a relatively low interest rate, justifi ed by the public benefits of the investment: schools with installed solar arrays get low cost energy; surpluses made by PEC from selling electricity are reinvested in community energy services such as energy advice. Share Offer Statistics Loan Finance

Plymouth City Council £2,870,000

Target Raise

£1,230,000

Price per Share

£1

Minimum shareholding per Member

50

Maximum shareholding per Member

100,000

Target Annual Return

6% per annum

Share Capital Repayments

Up to 1/15th per year from year 6

Term

Up to 20 years

First Close Date

24th July 2017

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Solar roofs on 32 schools and community buildings Saving host installations £90,000 per year 2MW clean energy Local installers & jobs City’s largest solar roof on Plymouth Life Centre Smallest installation on Shekinah drop-in centre 6% interest paid to first investors on schedule

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