Sustainable energy :the contribution of the EIB

Bucharest, 12 November 2009

Milena Messori

European Investment Bank

Table of Content

Renewable energy

EIB and the policy context1.

2.

Energy efficiency3.

4. Research, development and innovation in energy

5.

Financial instruments, Carbon funds & Technical assistance6.

Climate change

The European Investment BankLong-term Finance Promoting European Objectives

• Created by the Treaty of Rome in 1958 to provide financing for Europe's major infrastructure projects

• Subscribed capital: € 232.4bn

• EIB shareholders: 27 Member States of the European Union

• EIB’s loans in 2009: € 55.5bn (+63% in respect to the same period of 2008)

• 19 years of activity in Romania, with lending of € 6.6bn

EIB and the policy context

• 20% reduction of greenhouse gas emissions by 2020

• 20% share of renewable energies in the overall EU energy mix

• 10% share of biofuels in petrol and diesel for transport

• 20% reduction in energy consumption

• sustainability by promoting renewable energy sources

• competitiveness in energy supply

• security of supply by promoting diversified sources of energy

Energy: EU Policy Context

The EU energy policy promotes:

The EU has pledged to achieve:

Meeting these targets will be an enormous challenge

EIB and the policy context

EIB contribution to EU policy objectives in the field of energy and climate change

EIB and the policy context

• renewable energy• energy efficiency• research, development and innovation (RDI) in energy• security and diversification of internal supply

(including trans-European networks)• security of external supply and economic development

EIB contribution concentrates on five priority areas:

EIB contribution to energy lending:

• in 2008, € 12.5bn (€ 11.2bn within EU-27)

• in 2009, € 9.6bn

Renewable Energy Financing in 2008 amounted to € 2.2 bn

EIB’S Energy Financing in 2008

EIB and the policy context

Total Energy Signatures 2008 € 12.5 bn

Convent. Energy 41%

Renewable Energy 20%

Distribution 37%

Other 2%

Table of Content

Renewable energy

EIB and the policy context1.

2.

Energy efficiency3.

4. Research, development and innovation in energy

5.

Financial instruments, Carbon funds & Technical assistance6.

Climate change

EIB Targets for Renewable Energies

• annual target of min. EUR 800 m lending to RE projects

• at least 20% of energy projects in the EU should cover renewable sectors

• 50% of EIB lending to electricity generation associated with RE technologies

• development of financial instruments, including framework facilities, for smaller-scale investments and use of structured finance and investment funds

Renewable Energy

EIB Renewables Finance

In 2008, EIB financed 5% of installed capacity of wind to energy sector in Europe

The RE projects fall into two groups supported by the Bank:• mature technologies – already used commercially (onshore

wind farm, hydropower, geothermal and solid biomass)

• emerging technologies – in an early implementation phase (photovoltaics, solar thermal and second generation biofuelproduction technologies)

Renewable energy

Wind Energy projects accounted for 37% of EIB’s Renewable Energy Financing in 2009

EIB’S Renewable Energy Financing in 2009

Renewable energy

Solar28%

Multi sector27%

Wind37%

Hydro7%

Biomass1%

Table of Content

Renewable energy

EIB and the policy context1.

2.

Energy efficiency3.

4.

1

Research, development and innovation in energy

5.

Financial instruments, Carbon funds & Technical assistance6.

Climate change

Energy Efficiency (EE)

Energy efficiency is the most cost-effective way of reducing emissions and improving security of energy supply

EIB projects lead to energy ‘savings’ – EE as a side effect

The EIB’s EE target areas include:– Residential and commercial buildings– Transport– Electricity production & distribution– Industry

EE considerations are mainstreamed into all EIB operations, working with promoters to extend the EE potential of projects

Energy efficiency

Energy Efficiency Lending

• Projects targeting Energy Efficiency averaged € 2.2 billion per annum (8% of total EIB signatures)

• Includes demand side and supply side projects

- Power production has focused on combined heat & power and district heating

- Smaller demand side projects (principally benefiting SMEs) supported through dedicated energy efficiency global loans

- Significant investment in automotive R&D, almost exclusively for improved energy efficiency

• Many examples of energy efficiency investments as components ofindustrial or accommodation investments

Energy efficiency

Energy Efficiency: Policy Issues

Information and incentives:

• Low energy prices and energy metering- support tariff reforms

• Poor information about energy efficiency possibilities- Technical Advice funds when available

• High implicit discount rates for energy savings- combining grants and loans or risk sharing instruments

• Develop public transport and integration of energy considerations in urban development: - significant lending prospects in this area, including through

PPP structures

Energy Efficiency

Table of Content

Renewable energy

EIB and the policy context1.

2.

Energy efficiency3.

4. Research, development and innovation in energy

5.

Financial instruments, Carbon funds & Technical assistance6.

Climate change

EIB promoting the aims of the Lisbon agenda

The EIB’s Innovation 2010 Initiative supports investments in R&D and innovation promoted by public and private entities

EIB contributes in/with:

– Research infrastructures

– Financial Instruments – developed to support RDI finance

Research, development and innovation in energy

Table of Content

Renewable energy

EIB and the policy context1.

2.

Energy efficiency3.

4. Research, development and innovation in energy

5.

Financial instruments, Carbon funds & Technical assistance6.

Climate change

The EIB and Climate Change

Contributing by:• Financing projects that lead to gas

emission reduction or contribute to fight climate change and climate variability

• Creating and developing Carbon Markets

• Developing technical assistance facilities to support upstream activities and project preparation related to the carbon market

Climate Change

Table of Content

Renewable energy

EIB and the policy context1.

2.

Energy efficiency3.

4. Research, development and innovation in energy

5.

Financial instruments, Carbon funds & Technical assistance6.

Climate change

EIB Financing Instruments

• EIB’s traditional loan products• New financial instruments for sustainable energy

Financial instruments

General Terms:

• Senior loans

• Corporate Loans and Project Finance

• Loan term up to economic life of the assets

• Loan amount generally up to 50% of eligible project costs

• > 25m € investment cost

• Direct Investment Loans

• Project could consist of single or multiple sites / sectors

• Comprehensive loan appraisal justified by project size

• Where EIB takes full project risk, loan may fall under SFF => EIB loan amount capped at 200m € (maximum amount could be lower depending on riskiness of project)

Large Scale Projects Investment

Financial instruments

• < 25m € investment cost

• Global loans to intermediary

• Traditionally intermediaries are financial entities

EIB Strategy:

• Increase exposure to small-to-medium scale wind energy projects through:- Intermediated loans on a risk-sharing basis

Small-to-Medium Scale Projects Investment

Financial instruments

• EIB capital under Structured Finance Facility (SFF) for non investment grade projects

- € 3.75bn facility for higher risk priority projects

- Quasi-equity / risk-taking instruments

• Risk Sharing Finance Facility

- Established with European Commission with capital of € 2 billion

- Supports investment in R&D including Energy

Technical Assistance for Sustainable Energy – Risk Facilities

Financial instruments

Financial Instruments for Sustainable Energy – Climate Change

• Climate Change Technical Assistance Facility (CCTAF)

- A € 5 million TA facility to cover carbon crediting activities of projects expected to be financed by the EIB

- Conditional funding –reimbursable on successful registration of carbon credits meeting requirements of Kyoto Protocol

Financial instruments

Equity Funds for renewable energy / clean energy projects

- Investment into energy projects via funds managed by professional funds managers

- First transactions cornerstone investor in Spain, Czech Republic, Portugal and Netherlands

- Further transactions with broader geographical base in negotiation with the private sector

Financial Instruments for Sustainable Energy –Equity Funds

Financial instruments

International Carbon Funds

• Multilateral Carbon Credit Fund (MCCF)

• Carbon Fund for Europe (CFE)• EIB/KfW Carbon Purchase Programme

• Post 2012 Carbon Fund

Carbon funds

Multilateral Carbon Credit Fund

• Co-sponsored and managed by EBRD and EIB

• Opened to:- shareholders of EBRD or EIB- private companies and other public entities (compliance /

voluntary buyers)- Fully subscribed to the value of EUR 150 million

• Aims to buy credits- from EBRD- and/or EIB- funded projects- Value added role of private sector carbon managers

• Buyers bear delivery risk and Kyoto risk

• Phasing: - Investment period 2006-2009, - Delivery period 2009-2013 (2014)

Carbon funds

Carbon Fund for Europe

• Trust fund established by the World Bank in partnership with EIB

• Fund will purchase greenhouse gas emission reductions

• Eligible projects from either bank’s portfolio or standalone projects

• First tranche of € 50 million subscribed with 4 sovereign and 1 private participant

Carbon funds

EIB/KFW Carbon Purchase Programme

• Risk sharing arrangement between EIB and KfW

• Focus on enabling EU based SMEs to access the carbon market for voluntary or statutory compliance purposes

• Significantly extends the carbon market to players normally excluded due to limited purchasing requirement and lower credit standing

Carbon funds

POST 2012 Carbon Fund

• Addresses current gap in Kyoto carbon market relating to post 2012 uncertainty

• Fund will acquire post 2012 credits only, thus extending revenue stream of environmentally beneficial projects

• Banks take risk of non development of market after 2012

• EIB leading development with NIB, KfW, CDC & ICO

• €125 million committed

Carbon funds

For more information…

http://www.eib.org/

Milena Messori, Head of Office - Romania

messori@eib.orgTel: +40 21 208 6400Fax: +40 21 317 9090