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How we picked up the fruit of energy efficiency

An interview with Peter Sweatman, Rapporteur to the Energy Efficiency Financial Institutions Group (EEFIG), March 2023

EEFIG during 10 years article

When he was US Secretary of State, Nobel Physics prize winning laureate Dr Steven Chu said at COP15 in 2009 that “energy efficiency is not just low-hanging fruit; it is fruit that is lying on the ground. We have the potential to make buildings 80 percent more efficient with investments that will pay for themselves in less than 15 years.”

The quote is presented by Peter Sweatman in our interview done in the occasion of EEFIG’s 10th anniversary, March 2023. We look at the past, the present, and the future.

That same year at COP15, Peter Sweatman met Eric Usher, director of the UN Environment Programme’s Finance Initiative, and this meeting became the precursor to the thoughts and ideas that would a few years later be persecuted under the name of EEFIG. They picked the fruit up from the ground.

Now, around 10 years later, energy efficiency is finally mainstream – part of our dinner conversations and concerns. As we write, the Council and Parliament has agreed on reducing final energy consumption at EU level by 11.7% more than the prior reference case by 2030. This means reducing finanal energy consumption in Europe by around a quarter in just eight years.

That is why we sat Peter down for an interview to recap the last 10 years of EEFIG’s impact and importance in the landscape of energy efficiency.

How has the focus and work form of EEFIG developed during the last 10 years, more specifically for each phase of EEFIG's work?

Peter recounted, that phase 1 of EEFIG from 2013-15 started with a formal mandate letter from the European Commission to write a report answering three specific and fundamental questions: 1) to list the imminent challenges to overcome regarding energy efficiency financing and investment in buildings, SMEs, and industry from a financial institution’s perspective, 2) who could resolve them and 3) the role of the European Commission in sorting this out.

The resulting 127-page report “Energy Efficiency – the first fuel for the EU Economy” took a deep look at the drivers of demand and supply of finance in buildings, SMEs and industry. They produced a list of 31 prioritised recommendations to policymakers and market participants by sector, with some cross-cutting and some just for financial institutions. The report also included an annex describing and analysing the 16 different financial instruments then being used for energy efficiency investments, as well as endless lists of best practices and positive case studies.

Peter Sweatman says: “The method used by EEFIG to identify and rank its recommendations was so innovative that it was replicated with 233 national stakeholders in five key Member States illustrating that the drivers and recommendations from the landmark report resonated at the local level, and yet each a different priority order in different market conditions.”

In phase 2 EEFIG set about implementing the recommendations it had produced in phase 1 for the two main actors: Policy makers and market participants.

Legislatively speaking, each recommendation required the engagement of multiple policy stakeholders, the identification of the responsible Governmental entities, desk officers, technical agencies and encouraging them to take ownership of the problem and finding a solution.

For market participants, EEFIG had to design tools to help identify, spot and include energy efficiency investments in their in buildings and industrial portfolios. This was resolved by the production of Europe’s largest energy efficiency investment database (DEEP) and a specialised Underwriting Toolkit for mainstream finance actors. Read more about them in the links.

But it was in the latest phase 3 that EEFIG really bloomed, and came of age, Peter stresses. Firstly, EEFIG’s website and its tools were fully integrated into the Commissions own domain, for quick and easy, one-stop information. “While this may not sound like much, it gave an immediate upgrade to all EEFIG outputs and meant that the wider commission functions could orient more quickly around EEFIG’s work.”

There were ten separate working groups in phase 3. Work done in these Working Groups required different finance specialists to help answer some of the most important technical questions uncovered by EEFIG and then agreed by EU policy makers and market participants. Two years and thirty experts later, each working group produced 100+ page reports that resolved some of the central issues hampering energy efficiency investments with input from global experts, institutional observers, central banks and other Commission departments.

So, as one of the early and long-term members of EEFIG who have been here from the very beginning, what achievements can the group be most proud of?

“We fixed the public sector accounting rules governing Energy Performance Contracts,” Peter says, and continues, “...and we helped position and develop the energy efficiency first principle.” By 2023, over 200 organisations had contributed to this work, but most of the heavy lifting was done by 500+ voluntary experts providing their time to the Commission and UNEP FI for free.” Read more about the impact of the EEFIG members here. (Link to article 1)

There was one achievement which EEFIG members even refer to as “the holy grail of energy efficiency.” This is the clear and undisputable statistically significant positive correlation between energy efficiency and credit performance. EEFIG’s risk working group published the largest European study of evidence covering over 800,000 mortgages which show across multiple countries and portfolios that more energy efficient properties suffer lower defaults and arrears. This matches a similar conclusion arrived at in studies released by the Bank of England.

Furthermore, EEFIG has also delivered reports on e.g. the Multiple Benefits of Energy Efficiency, the Evolution of Financing Practices, and Energy Efficiency in industry.

Some of EEFIGs other achievements over the years include inspiring over 40 Horizon funded research projects (including the Energy Efficient Mortgage Initiative, the Investor Confidence Project, and the Sustainable Energy Investment Forums) and establishing Europe’s largest open-source database of realised energy efficiency investments with data on over 24,000 energy efficiency investments.

(…)The next couple of months offers the last three Working Group reports on the Energy Efficiency First principle, Collecting and Monitoring of Data, and Stimulate Consumers’ Demand for Energy Efficiency Investments. The results of these reports will be presented at EUSEW 2023 in the public event “Strengthening Energy Efficiency as a main tool for clean energy transition and energy independence”

All these results show a decade full of real change and signals a future with even more focus on energy efficiency.

What is the potential for energy efficiency in the future?

Energy efficiency-related investments rose by 16% in 2022, to just over USD 560 billion globally. While this is likely a direct result of the unfolding energy crisis, the IEA believes the trend will continue with an increase of a further 50% to USD 840 billion per year from 2026 to 2030. Notwithstanding this, these levels will have to double again in the second half of this decade to align with the IEA’s Net Zero Scenario.

“To me,” says Peter, “this is a sign that EEFIG’s work will be increasingly read and relied upon to unlock these investments in the coming years as more and more financial institutions operationalise and imbed energy efficiency first policies and react to the new energy price and security environment.”

However, EEFIG – as it is currently configured – will come to an end this year as it will have delivered all its tasks set in 2018. But Peter Sweatman has relief for us: “I’m pleased to say that in the EU Save Energy communication the Commission has called for the launch of a high-level European Energy Efficiency Financing Coalition to mobilize private financing for energy efficiency.” This is clearly an extension of EEFIG and the new coalition will build on the bedrock of EEFIG’s technical work to further increase their understanding of the issues around new public-private energy efficiency financial instruments. This can take EEFIG’s work up a notch politically and simultaneously land its conclusions in millions of buildings, SMEs and industries across the 27 Member States.

The importance of what EEFIG has achieved and what it will enable is only just emerging, the full impact will perhaps only be seen when we look back from 2030. But for now, we have our heads down and – as then US Secretary of Energy Chu also said – we must “put our foot to the floor on energy efficiency.”