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  • Third Party Investment Operators: Leveraged Financing Vehicles of Sustainable Cities

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    Laziza Rakhimova
    30 visualizzazioni17 pagine
    The sustainable city model conception entails developing innovative approaches to provide leveraged financing. Lack of adapted financial resources due to long term return on investments and numerous economic priorities in developed and developing countries hinder the achievement of energy efficiency and independence in cities. In order for cities to be sustainable and reach the "Factor 4" by decreasing GHG emissions, development of new scaled up funding mechanisms is necessary. The solution to this problem lies in the ability of urban actors to combine long-term and short-term needs and to find alternative and unconventional methods for massive financing of urban projects. The issue is complex, because the actors involved are diverse and the most innovative of them are often more limited in equity and debt capacity to fund sustainable energy and smart grid investments. This can limit long-term market growth and competition among new arising startups with good technical expertise (e.g. small and/or new ESCOs with no previous experience in borrowing). This paper presents state-of-the-art innovative sources of financing of a sustainable city and new funding mechanisms, including collaborative and participatory financing. It depicts European practical and academic insights on how diverse private capitals and new actors - specialized third party financing operators in sustainable energy--could provide alternatives to the insufficiency of available funds to cover retrofitting and renewable energy needs and ensure an economy of scale for massive financing of urban sustainable energy. Based on firsthand pioneering experiences of authors in conception of public-private vehicles, the paper describes current and proposed types of interventions of operators. They include a delivery of energy performance-based contractual models for comprehensive refurbishment in the built environment, participation in capital of small and medium renewable energy projects, and attraction of citizens’ funding for these types of initiatives, etc. These new urban actors possess financial engineering expertise to mobilize all available sources of funding including but not limited to subsidies and external aid. They play the role of “assemblers“ by bringing global organizational, legal and technical solutions to urban sustainable energy projects. The paper’s valuable contribution lays in the novelty of such approach as well as in the analysis of first operators’ experiences which emerged in the beginning of 2013 in France (Energie Posit’if in Paris area and envisaged metropolitan climate fund Grand Lyon) that pool small and medium sustainable energy projects. Cases presented in the paper demonstrate the ways in which current energy efficiency practices in cities could be revamped in order to develop models that would boost massive refurbishment of the building stock, introduction of RET, and sustainable transport, as well as how these practices could be transposed to similar contexts.

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    The sustainable city model conception entails developing innovative approaches to provide leveraged financing. Lack of adapted financial resources due to long term return on investments and numerous economic priorities in developed and developing countries hinder the achievement of energy efficiency and independence in cities. In order for cities to be sustainable and reach the "Factor 4" by decreasing GHG emissions, development of new scaled up funding mechanisms is necessary. The solution to this problem lies in the ability of urban actors to combine long-term and short-term needs and to find alternative and unconventional methods for massive financing of urban projects. The issue is complex, because the actors involved are diverse and the most innovative of them are often more limited in equity and debt capacity to fund sustainable energy and smart grid investments. This can limit long-term market growth and competition among new arising startups with good technical expertise (e.g. small and/or new ESCOs with no previous experience in borrowing). This paper presents state-of-the-art innovative sources of financing of a sustainable city and new funding mechanisms, including collaborative and participatory financing. It depicts European practical and academic insights on how diverse private capitals and new actors - specialized third party financing operators in sustainable energy--could provide alternatives to the insufficiency of available funds to cover retrofitting and renewable energy needs and ensure an economy of scale for massive financing of urban sustainable energy. Based on firsthand pioneering experiences of authors in conception of public-private vehicles, the paper describes current and proposed types of interventions of operators. They include a delivery of energy performance-based contractual models for comprehensive refurbishment in the built environment, participation in capital of small and medium renewable energy projects, and attraction of citizens’ funding for these types of initiatives, etc. These new urban actors possess financial engineering expertise to mobilize all available sources of funding including but not limited to subsidies and external aid. They play the role of “assemblers“ by bringing global organizational, legal and technical solutions to urban sustainable energy projects. The paper’s valuable contribution lays in the novelty of such approach as well as in the analysis of first operators’ experiences which emerged in the beginning of 2013 in France (Energie Posit’if in Paris area and envisaged metropolitan climate fund Grand Lyon) that pool small and medium sustainable energy projects. Cases presented in the paper demonstrate the ways in which current energy efficiency practices in cities could be revamped in order to develop models that would boost massive refurbishment of the building stock, introduction of RET, and sustainable transport, as well as how these practices could be transposed to similar contexts.

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    30 visualizzazioni17 pagine

    Third Party Investment Operators: Leveraged Financing Vehicles of Sustainable Cities

    Caricato da

    Laziza Rakhimova
    The sustainable city model conception entails developing innovative approaches to provide leveraged financing. Lack of adapted financial resources due to long term return on investments and numerous economic priorities in developed and developing countries hinder the achievement of energy efficiency and independence in cities. In order for cities to be sustainable and reach the "Factor 4" by decreasing GHG emissions, development of new scaled up funding mechanisms is necessary. The solution to this problem lies in the ability of urban actors to combine long-term and short-term needs and to find alternative and unconventional methods for massive financing of urban projects. The issue is complex, because the actors involved are diverse and the most innovative of them are often more limited in equity and debt capacity to fund sustainable energy and smart grid investments. This can limit long-term market growth and competition among new arising startups with good technical expertise (e.g. small and/or new ESCOs with no previous experience in borrowing). This paper presents state-of-the-art innovative sources of financing of a sustainable city and new funding mechanisms, including collaborative and participatory financing. It depicts European practical and academic insights on how diverse private capitals and new actors - specialized third party financing operators in sustainable energy--could provide alternatives to the insufficiency of available funds to cover retrofitting and renewable energy needs and ensure an economy of scale for massive financing of urban sustainable energy. Based on firsthand pioneering experiences of authors in conception of public-private vehicles, the paper describes current and proposed types of interventions of operators. They include a delivery of energy performance-based contractual models for comprehensive refurbishment in the built environment, participation in capital of small and medium renewable energy projects, and attraction of citizens’ funding for these types of initiatives, etc. These new urban actors possess financial engineering expertise to mobilize all available sources of funding including but not limited to subsidies and external aid. They play the role of “assemblers“ by bringing global organizational, legal and technical solutions to urban sustainable energy projects. The paper’s valuable contribution lays in the novelty of such approach as well as in the analysis of first operators’ experiences which emerged in the beginning of 2013 in France (Energie Posit’if in Paris area and envisaged metropolitan climate fund Grand Lyon) that pool small and medium sustainable energy projects. Cases presented in the paper demonstrate the ways in which current energy efficiency practices in cities could be revamped in order to develop models that would boost massive refurbishment of the building stock, introduction of RET, and sustainable transport, as well as how these practices could be transposed to similar contexts.

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    Third Party Investment Operators: Leveraged Financing Vehicles of Sustainable Cities

    International Conference on Sustainable Development Practice (ICSDP): Advancing Evidence-Based Solutions for the Post-2015 Sustainable Development Agenda September 6-7, 2013 , Columbia University, New York

    Laziza RAKHIMOVA, lrakhimova@ecosystem-energy.com Natalia ZUGRAVU-SOILITA, natalia.zugravu@uvsq.fr Christophe MILIN, christophe.milin@ademe.fr


    1

    Ecosystem Mission
    Ecosystem is a company of energy experts providing coprehensive refurbishment for energy intensive buildings with a guarantee on estimated energy savings Solutions: customized deep retrofits that reduce energy bills/increase cost savings (on average 30 percent) and significantly decrease buildings carbon footprint

    Context: Main polluters in Cities


    Buildings : 40% of total energy consumption, 35 % of CO2 emissions
    relatively low renovation rates (!)

    Road transport contribute nearly to 30% of total CO2


    conservative penetration of electric car market (!)

    TARGET: 80% reduction in GHG before 2050, via massive refurbishment of existing building stock shift to electric carbon free vehicles (fuel cell ) filling in an existing potential of RET
    3

    Problematic
    Lack of massive funding: absence of financial markets supporting long and risky projects+ difficulty of valuing risk of investments limited capacity of direct actions of public actors to catalyze sustainable financing
    Need to introduce new financial schemes for massive sustainability up-take in cities
    4

    Contributions
    Part 1 identification of sustainable urban financing bottlenecks Part 2 definition of the typology of innovative investment schemes in sustainable cities, highlighting the role of (i) special purpose entities and (ii) third party public-private operators in securing a leveraged funding Part 3 analysis of first hands-on practices and envisaged evolution of pilot metropolitan operators emerging in French market.
    5

    Public Actors: in Need of External Capital


    Weak and insufficient tax revenues -> contributions from external capital will be required. In US 3,5 billion $ investment in urban
    infrastructure will be required between 2011 - 2020 Siemens (2011)

    In the French building sector, planned budget for energy retrofitting loans until 2020 (1.2 billion Euros) -> 10% of needs ECEEE (2013) Public resources are strained; significant funding progress is grossly dependent on possibilities of leveraged private participation SDSN (2013)

    Difficulties in Mobilization of Private Capital


    Focus on short term profitability by private actors Not enough mature sustainable energy markets -> fragmental view of low carbon projects by the banking sector evaluated only according to financial cash flow not taking into account sustainability criteria (e.g. energy savings, green value). uncertainties on energy efficiency/new technologies Companies with a lower credit rating vs big operators small companies with technical expertise but lack of previous experience in borrowing can not take part in urban financing only not numerous big (e.g. utility backed) companies can intervene by investing their own funds or attracting external 7 financing

    Current Practices vs Innovative Urban Investment Models

    TPIO : Building Sector


    Janci and Quinet (2011) present TPI as financial innovation, contributing to develop alternative schemes capable to serve a common goal of GES reduction till 2050 CDC (2010) suggests that TPI vehicles operating in the field of EE should possess a triple expertise: technical knowledge, financial engineering and provide energy performance guarantee. The EEB Hub (2013) discuss the need to include financing of EE measures for smaller buildings under the umbrella of a larger organization with the necessary access to credit

    Broader Scope: Regional investment Fund Strategy


    SDSN (2013) appeals for a city or region investment fund strategy to support regional objectives combined with climate adaptation funding:
    to build leveraged investment finance via an institutional structure exemplifying PPP -> social, environmental and economic outcomes to the region.
    10

    Third Party Investment Operator model

    11

    Paris Metropolitan Energy Operator Energies Positif (Building sector and RET)
    launched in January 2013 by Paris metropolitan area (Ile-de France) with the support of CDC public/private ownership structure Intervenes in deep renovation of:
    Collective housing (condominiums but also small social housing operators) ; provides technical expertise, coordination of work, guarantees energy efficiency and a viable financing. Local government buildings. consultations on attainment of low consumption building" label. Renewable energy projects
    12

    Energies Positif: Business Plan


    Investments will be financed through equity, debt, access to low interest debt such as CDC or EIB loans, and the sale of energy savings certificates (white certificates). Initially capitalized with 5.3m for the period 20122014. In the longer term (2020), capital should increase to 15.5m. Initial business plan aims to invest 40m for the period 2013-2015. Energies POSITIF intends to assign contracts to financial institutions looking for long-term investments.
    13

    Prerequisites to Embrace Urban Sustainability


    combination of long-term investment priorities with short-term logics of financing ability to innovate and enter into alternative/unconventional financing schemes on a large urban scale, and availability of specialized financial institutions with specific financial and technical expertise and consciousness on the nature of sustainable urban projects.
    14

    Possible Solution: Urban Investment Fund


    Third Party Investment Operators - new private-public urban actors that would secure long term massive investments and gain access to low-profitable and non-bankable segments

    15

    Further Research
    Exploration of right viable financing patterns of private-public solutions for innovative, intelligent, low carbon emitting technologies that will cover urban sustainability needs. Following of new emerging pilot projects -> can bring "demonstration and multiplier effect Deliberation on initiation of similar structures and partnerships for one specific or multiple urban sectors
    16

    Thank you! Questions, Comments

    17

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