Annexes to COM(2006)583 - Mobilising public and private finance towards global access to climate-friendly, affordable and secure energy services : The Global Energy Efficiency and Renewable Energy Fund - Main contents
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| dossier | COM(2006)583 - Mobilising public and private finance towards global access to climate-friendly, affordable and secure energy services : The ... |
|---|---|
| document | COM(2006)583  |
| date | October 6, 2006 |
Enhancing private sector access to risk capital through the public provision of patient capital seems to be the most promising avenue because it offers various ways of risk sharing. The public could:
- accept lower returns on a case by case basis depending for instance on the actual risks to be covered, and thereby lift returns for the private sector towards commercial thresholds;
- accept longer investment or repayment periods ('first in – last out') to match the high upfront investments with the low operating and maintenance costs;
- take on higher transaction costs to allow targeting small and medium scale businesses and serve the needs for a broad range of business support services, seed and growth capital.
4. PUTTING THE INNOVATIVE PUBLIC-PRIVATE PARTNERSHIP INTO PRACTICE
The objective is to mobilize public and private finance that can help solve the financing grid-lock for economic renewable energy and energy efficiency projects and businesses, especially focusing on the risk capital gap. This could include scaling up of successful pilot schemes. International finance institutions like the EIB, EBRD and the World Bank, private sector investors, and other financial intermediaries have already started to join hands with the Commission to set up the GEEREF. Initial co-investment possibilities were identified by the EIB (targeting in particular the Africa, Caribbean and Pacific and the Mediterranean regions) and by the EBRD (for a regional fund covering the non-EU Eastern European markets).
How would it look like?
The GEEREF will be set up as a global public-private partnership taking the form of body established under private law with a public sector mission.[12] This will be done in close partnership with an International Finance Institutions such as the EIB and the EBRD. It will offer new risk sharing and co-funding options for various commercial and non-commercial investors with a global investment mandate. It will allow engaging professional fund managers on a self-sustaining basis, acting in accordance with a specific mandate established by donors and investors. High-quality monitoring, reporting and control features will be established.
Rather than providing finance directly to the target groups, GEEREF will actively engage in the creation and funding of regional sub-funds or in scaling up similar existing initiatives. This will accommodate specificities of different regional markets bringing in international financial institutions, local expertise in addition to scientific-based knowledge and to leverage additional private sector funding. Engagement in any sub-fund will be subject to the compatibility of its investment strategy with that of the GEEREF, its sound management and implementation capacity and the provision of a minimum proportion of commercial co-funding.
Who will be supported?
The GEEREF will support renewable energy and energy efficiency project developers and SMEs. The focus will be on projects below EUR 10 million as these as mostly ignored by commercial investors and IFIs. In addition to utility-based projects, investments will include manufacturing and assembly businesses, consumer, SME, and micro-finance intermediaries.
Which regions will be covered?
The GEEREF will support regional sub-funds for Sub-Saharan Africa, Caribbean and Pacific Island States (ACP region), the countries of the European Neighbourhood (including North-Africa and non-EU Eastern Europe including Russia), Latin America, and Asia (including Central Asia and the Middle East).[13] The new Development Cooperation Instrument (DCI) will provide the legal basis and the GEEREF will be incorporated into the Thematic Programme for Environment and Sustainable Management of Natural Resources, including Energy (ENRTP) set out in that Instrument.[14] Funding will be market-driven whilst priority will be given to investments in those countries or regions with renewable energy and energy efficiency policies that are conducive to private sector engagement. There will be a special emphasis on serving the needs of ACP countries.
What type of support will be provided?
The major part of the Fund will be used to provide risk capital to different types of renewable energy and energy efficiency investment projects. Capital will be provided at affordable "patient" terms whereby the degree of patience will reflect the degree of local and global benefits offered by the sub-funds and their underlying projects. GEEREF participation will range from between 25 to 50% for medium to high risk operations to 15% for low risk operations. In addition, the Fund will include dedicated technical assistance funds. These will amount to 10-20% of the total fund size depending on the actual needs for capacity building which is likely to be greater in less developed economies. Through this feature, local and international technical expertise can be employed to improve project proposals and business plans in parallel with developing the investment pipeline. Both actual provision of risk capital and technical assistance will make the Fund a 'one stop shop' which will reduce transaction costs and improve overall performance of the Fund.
Which types of technologies will be supported?
The investment scope will include a broad mix of project types, and energy efficiency and renewable energy technologies. Given the focus on developing countries and transition economies, the emphasis will be placed on deploying environmentally sound technologies with a proven technical track record, also taking account of science-based knowledge resulting from such programmes as the Community Framework Programmes. Experience and projections show that small hydro and biomass comprise a large part of investment prospects, with on-shore wind also offering significant potential. Photovoltaics may remain costly for the lowest income countries. Renewable energy is to likely dominate the investment portfolio. Energy efficiency projects will qualify in particular where similar financing barriers need to be resolved. Co-firing (e.g. coal and bagasse), energy service companies, and other small and medium scale clean and efficient energy solutions will also be eligible.
What is the envisaged size of the Fund?
The minimum funding target for the GEEREF is set at EUR 100 million. This target is both necessary to have a meaningful impact at the global level and sufficient to establish a public-private partnership that will be self-sustaining over time.
Assuming that a first financial close in the order of EUR 100 million would be achieved, additional capital of at least EUR 300 million up to EUR 1 billion could be mobilised through the sub-fund structure and at the project and SME level. Considering the prospects to recycle and reinvest the initial public funds, this figure could grow over the coming years. Fund leverage could be up to a factor 10. This is considerably higher than for conventional grant-based schemes that ask for 50-70% co-funding.[15] It is envisaged that up to €50 million Euro co-financing may be obtained from the Investment Facility under the 9th European Development Fund managed by the EIB to develop activities in ACP regions. This novel instrument could serve as a positive example that could be replicated, including by other public and private investors.
What is the expected benefit?
Once fully invested and leveraged, GEEREF could bring almost 1 Gigawatt of environmentally sound energy capacity to developing country markets. This could serve 1-3 million people with sustainable energy services, substituting 1-2 million tonnes of CO2 equivalents per year. GEEREF will also broaden the range of instruments to effectively support the development and transfer of environmentally sound technologies between developed and developing countries. It will strengthen the Community's capacity to implement the above mentioned strategies and thematic programmes and to generate synergies with European Technology Platforms, Joint Technology Initiatives, and Climate Change and Energy Partnerships, e.g. with Russia, China and India The promotion of clean energy solutions will generate substantial benefits in terms of improved indoor and ambient air quality and promote the creation of local enterprises, employment and income development.
5. CONCLUSIONS AND NEXT STEPS
The proposed Global Energy Efficiency and Renewable Energy Fund as outlined in this Communication is a novel public-private partnership complementing available Community financing instruments. It is specifically designed to boost the Community's capability to support the implementation of its partner countries' sustainable development and poverty eradication programs, and accelerate the transfer, development and deployment of environmentally sound technologies. It will facilitate efficient co-operation amongst donors and commercial investors, including international finance institutions, and ultimately accelerate the global market uptake of sustainable, secure, and affordable energy technologies and the services they deliver. It provides a strong response to the urgent need for innovative public-private financing solutions called for by the European Institutions.
The European Commission welcomes the initial expression of interest from the EIB and EBRD to co-finance this initiative. It invites the Council and European Parliament to provide its political support to this novel initiative so that interested public and private stakeholders can firm up their expressions of interest.
Considering the risks involved, the European Commission acknowledges that a significant contribution from the Community budget is essential to kick-start the initiative and trigger substantial private co-funding. . The European Commission proposes to contribute up to EUR 80 million covering the period 2007-2010 to the GEEREF within the context of the Thematic Programme on the Environment and the Management of Natural Resources, including Energy. A first contribution of EUR 15 million is proposed to be made in 2007. GEEREF will be structured to ensure that these contributions can be reported in the annual development assistance committee (DAC) co-operation report. The necessary human resources for this initiative will be covered from existing resources, where necessary through internal redeployment.
The Commission also invites Member States, EEA Members, and other finance and corporate institutions to join this novel global initiative.
Considering that this is a novel approach, the European Commission Services will continue to develop the detailed implementing arrangement together with the fund management team, the EIB and the EBRD, and others that express a formal interest in co-financing this initiative. Member States and the European Parliament will be kept fully informed on the development of this initiative.
[1] IEA 2004. World Energy Outlook.
[2] JREC membership has grown since 2002 from 66 to 90 Governments that are committed to significantly increase the share of renewable energies through co-operation based on targets and timetables to guide investments. The EC co-chairs the Coalition together with Morocco and hosts the Secretariat.
[3] IEA 2003. World Energy Investment Outlook.
[4] Impax Capital Corp. Ltd 2004. The Patient Capital Initiative Feasibility Study.
[5] World Bank. 2006. Clean Energy and Development: Towards an Investment Framework.
[6] COM(2006) 105 of 8 March 2006.
[7] Council Doc. 8358/06 of 11 April 2006.
[8] Council Doc. 10117/06 of 9 June 2006.
[9] This paper was presented to the European Council of 15-16 June 2006.
[10] COM(2006) 20 of 25.1.2006, and COM(2005) 324 of 3.8.2005.
[11] OJ, C139 dd. 14.6.2006 pp.1-17 Paragraph 49.
[12] Compatible with the relevant provisions in Art. 54 (2) of the Financial Regulations.
[13] As regards countries covered by the Pre-Accession Instrument, supplementary funding from other Instruments should be secured.
[14] Council Doc 134/06 DEVGEN dd. 20.7.2006.
[15] For detailed calculations, Section 6 of the impact assessment in support of this Communication (SEC(2006) 1224).