Five key factors for attracting investments in energy efficiency

June 15, 2017

Five key factors for attracting investments in energy efficiency

Eric Mackres, Building Efficiency Manager with the World Resources Institute (WRI) – Ross Center for Sustainable Cities, explains in an interview for the Balkan Green Energy News portal how the Building Efficiency Accelerator (BEA) and Global District Heating in Cities (DES) initiatives, that UN Environment (UNEP) is implementing in Belgrade with the help of WRI, contributes to Belgrade’s efforts to improve energy efficiency in buildings thus contributing to the UN goal of doubling energy efficiency by 2030. He also reveals five key elements for attracting investments to energy efficiency, so-called“five S” – stability, scale, standardization, segmentation and sequencing.

In what way does UNEP facilitate both Building Efficiency Accelerator (BEA) and Global District Heating in Cities (DES) initiatives?

The UN Environment is one of many global partners to SE4All and for the BEA and DES initiative. It is also the local implementing partner for Belgrade. So, there is a strong relationship between the City of Belgrade, stakeholders in Belgrade and UNEP helping to facilitate a process of thinking what are the challenges here related to district energy and buildings, how do we assess those and identify solutions and how to bring together different stakeholders to develop a plan that is implementable.

What is fascinating and really interesting in Belgrade is that the city understands the strong connections between buildings and district heating, and recognizes that in addition to improving district heating system itself the best way to provide sustainable energy to the citizens is through improving the buildings. It makes the whole district heating system more efficient if end users of the system already need less energy from it. It reduces cost for the system and cost for the consumers, and creates opportunity to provide energy to more of the city in more sustainable way.

What is the World Resources Institute’s (WRI) mission and how it contributes to the UN Sustainable Energy for All (SE4All) initiative?

The WRI is a global think and do tank. We identify challenges and opportunities related to environment and development.  We like to say that we indentify the problem in a quantitative way, we figure how to change it through new policies and new actions and then we scale those solutions by learning about what’s working and how to apply in another places. For SE4All we are the secretariat for the BEA. It is one of six accelerators that are implementing partnerships in order to reach energy efficiency goals of SE4All, and sustainable development goal number 7 related to sustainable energy. In that role we act as a convenor of this partnership between businesses, global civil society and technical organization, working in support of the local actions and priorities of the cities and other sub-national governments to improve energy efficiency in buildings.

What are your experiences with BEA activities so far?

The work of BEA is focused on supporting cities and other sub-national governments because those are the places where action is implemented. They are critical in taking the international standards or national guidelines that are set and then putting them into action, making sure that building energy codes are implemented, that building owners know how they can improve their buildings and have the assistance and information they need to do so. What we are finding is that this is a very new issue for many cities. Some like Belgrade are more advanced and have been thinking energy management for a long time. For a lot of other cities they are seeing this as a big opportunity to improve their buildings, making them more livable, more sustainable and valuable while at the same time they are reducing environmental and social impact.

What is the approach that you take when you decide on a city that you will include in the initiative? Do you make some analysis and based on that you say what they should do or you let the city,  participant in the initiative, to decide by itself according to the guidance and leadership that you provide?

When a city joins the BEA, they first commit to an overall vision of doubling the improvement of energy efficiency in their city by 2030. The three specific things, three actionable things that they commit to are: to implement a policy, a demonstration project and a method for tracking progress. That is the barrier for entry. We ask all cities who join the accelerator to do that, and then based on that we do assist them as they request in assessing the technical opportunities, but just as importantly assessing what are the stakeholder driven priorities, what is the appetite for among decision makers to take on. From our perspective the most important thing is to begin doing the feasible actions. Even if it is something small – once that is seen as an achievement, it will be able to grow to something bigger – small successes that can become larger to add toward that 2030 vision.

For Belgrade specifically they are working on guidelines for building owners to make it simpler for them to understand the process of making building renovations. This is for private buildings and on the same time they are also working with the City government to help shape a new energy efficiency fund, providing recommendations on how to structure that fund effective based on international experience. On the project side, they are working with the Secretary of Education for Belgrade and they have identified several buildings to which the Secretariat would like to see improvements made. We are assisting them with making an assessment of which buildings provide the best opportunities and then working with them to create technical documentation for improvement to one or more of those buildings.

What do you see as major obstacles related to Belgrade?

Belgrade has a lot of experience and technical capacity, several assessments and many projects that are working on building efficiency and more sustainable infrastructure. There is opportunity to improve coordination between those different initiatives, the national government and the local government, to set a common agenda, common vision and work toward that together. That is an area for improvement and it has been a barrier for action. That’s already beginning to improve. The other piece is just this idea of political will – how to move forward with that common agenda, what are the priorities, and to have leaders who will say that this is important. There are many big ideas, and the barrier at this point is just simply taking the time to take those ideas from concept to design in a way that is implementable.

One of the main challenges is how to attract investments or private sector to participate. Do you propose some solutions or make connections between people?

Finance is definitely a challenge to energy efficiency although in most places, also in Belgrade it is a secondary challenge. The primary challenge is having regulatory frameworks, the incentives in terms of how people think about decisions and why they make decisions the way they do, and the information that informs people specifically about the actions they should undertake for their building and why, not just in terms of cost but also in terms of health, comfort and safety.

The foundation of question is to make sure that there is an institutional framework for investment in place and that is the one that is understood and trusted by investors. In order to get to scale, to be able to improve enough buildings to really make an impact it can’t just come from public funds. The city has proposed to include some of its budget to fund energy efficiency fund but it won’t be enough. It is important to understand how other funds have done it, for example Armenian energy efficiency fund. They have been able to attract private investment and investment from multilateral funders. It is structured in a transparent and clear way and it is a revolving fund.

When you say private sector, are you referring to ESCO companies?

ESCO companies can be an important part of this. More importantly though is to make sure that there is demand from building owners, and that are at least leaders among large property holders whether it is in multi-family housing buildings, tenants association that are saying we understand the value of this, or businesses who say this is important for their business model. Those are the most important private sector actors to push forward this idea of scale, to say we have many buildings we want to invest in. ESCO can be one of the service providers that can help to make those investments, to package technical services with the finance. There is not one model for finance, it will depend on particular piece of the market, building sector is very diffuse and diverse. It is going to require many different solutions for particular market sectors.

So, do you suggest five S in order to attract investments?

One way we like to think about this is the five Ss of attracting investment to energy efficiency. This is really important to think about how the public sector and private sector relate to each other on these issues. The first S is stability. It is important to have a stable investment environment and that includes foundational policies, like energy codes that set the floor of how efficient building should be. The second is scale. Investors want to have significant volume of investment. In the building sector that can be challenging because you need many different buildings to have sufficient scale for private investors. Many of them will only consider investments and portfolios of USD 10 million or more. That can be 100 buildings or more before a private investor is really interested. It is important to think how to create that scale, to create a pipeline of investment projects.

The next S is for standardization. To make an investment project ready, investors are looking for certain pieces of information and that needs to be standardized and then collected across the buildings that are part of that investment portfolio. Basic things like the floor area of the building and which technical standard was used to assess energy savings potential. There are many other items like that and it makes much easier for an investor if they are all documented in a common way. If you have 100 buildings with the same sort of documentation, they can be seen as a portfolio and it makes it possible and easier for investors to package them and even to sell to other investors.

The forth is segmentation. It is another important piece to understand the diversity of building sector, to be able to understand which building types have similarities, to have typology of building and decision makers and to be able to reach out to buildings and engage them in taking action on building efficiency in a way that makes sense to them.

Finally, sequencing of actions is very important. There needs to be a path toward continuing improvement and continued action. Putting one policy in place is often not enough. It is important to understand how different policies and actions interrelate with each other. Having a building code that exists on the national level is great but having it implemented in a city so the savings are actually being achieved is an essential next step. Often times there are ways of think about incentives for buildings to go above the code. Thinking about how all these different policies and actions interrelate with each other and how they can be implemented in a sequence that continues to grow the demand to grow the scale of potential investments.

When you were presenting the BEA project in Belgrade, you were talking about potential of replication as a model in the region. Do you plan to transfer knowledge and experience form other cities and countries in the world?

The theory of change behind BEA is that cities can demonstrate a path forward that produces real, tangible change. For example, there is an opportunity for Belgrade to say: here’s how we did it here, then potentially there is an opportunity to scale that to other cities in Serbia, to scale that in partnership with the national government through identifying ways that national policy can better support action and the way the national policies can be designed to be more realistic for implementation at the local level. We also work on international exchange of information and ideas and strategies between cities. Belgrade is one of six cities in Eastern Europe that are part of the Accelerator and is already beginning to help with sharing knowledge with those cities that have some similar challenges. The emphasis is on replication but through many different channels between peers of cities in different parts of the world, within same country and the same region, and between national government and sub-national government which is particularly critical.