Third Party Investment Operators: Leveraged Financing Vehicles of Sustainable Cities

7/29/2019 Third Party Investment Operators: Leveraged Financing Vehicles of Sustainable Cities

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Third Party Investment Operators:Leveraged Financing Vehicles of

Sustainable Cities

Laziza RAKHIMOVA, [email protected]

Natalia ZUGRAVU-SOILITA, [email protected]

Christophe MILIN, [email protected]

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

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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


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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 buildingstock

shift to electric carbon free vehicles (fuel cell )

filling in an existing potential of RET 3


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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 cities4


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Contributions

Part 1 identification of sustainable urbanfinancing 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


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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 participationSDSN (2013) 6


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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. energysavings, 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

financing7


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Current Practices vs Innovative

Urban Investment Models

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TPIO : Building Sector

Janci and Quinet (2011) present TPI as financialinnovation, contributing to develop alternativeschemes capable to serve a common goal of GESreduction till 2050

CDC (2010) suggests that TPI vehicles operating inthe field of EE should possess a triple expertise:technical knowledge, financial engineering andprovide energy performance guarantee.

The EEB Hub (2013) discuss the need to includefinancing of EE measures for smaller buildingsunder the umbrella of a larger organization with

the necessary access to credit 9


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Broader Scope: Regional investment

Fund Strategy

SDSN (2013) appeals for a city or region

investment fund strategy to support regional

objectives combined with climate adaptationfunding:

to build leveraged investment finance via an

institutional structure exemplifying PPP -> social,

environmental and economic outcomes to the

region.

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Third Party Investment Operator

model

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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 projects12


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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 (whitecertificates).

Initially capitalized with 5.3m for the period 2012-2014.

In the longer term (2020), capital should increase to15.5m.

Initial business plan aims to invest 40m for theperiod 2013-2015.

Energies POSITIF intends to assign contracts tofinancial institutions looking for long-term

investments. 13


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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.

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Possible Solution:

Urban Investment Fund

Third Party Investment Operators - new

private-public urban actors that would

secure long term massive investmentsand gain access to low-profitable and

non-bankable segments

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Further Research

Exploration of right viable financing patternsof 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 sectors16


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Thank you!

Questions, Comments

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Third Party Investment Operators: Leveraged Financing Vehicles of Sustainable Cities

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