Main levers

Both financial and industrial levers have been identified.

The ESFA project proposes to mobilize two main incentivizing levers to mobilize the financial sector:

• the public guarantee;
• facilitating the refinancing of banks, with a particular interest in securitization schemes.[1]

The ESFA aims to give high quality guarantee to commercial bank loans, in order to partly cover their risks. The principle of a ceiling of 50% of the guaranteed risk is one of the considered options being studied to allow an alignment of interests between financial institutions and the ESFA. The quality assurance of the ESFA will result from the fact that its activities will be counter-guaranteed by the State, while we are currently witnessing a scarcity of good quality collateral in the euro area[2]. A financing transaction like an EPC, which already benefits from satisfactory financial conditions relatively to the risk taken, would benefit from even more favorable conditions. The standardization of operations (standards, volumes, etc.) should further improve these conditions. The terms of these loans remain to be studied: fixed rate, floating rate and possible indexed rate taking into account the global dimension of projects.

Securitization could also meet the current and significant needs for assets categorized as “energy shift” (“green bonds”) for very long-term finance. It is hardly conceivable that banks keep on their balance sheet assets that may have maturities of more than 30 years, given the prudential ratios imposed by the regulator (Basel III). Several securitization options are possible:

• to institutional investors (sovereign funds, pension funds, etc.);
• acquisition by the ESFA through a securitization fund;
• directly from the Central Bank.

It will thus be needed to create a market for these securitized assets through the design of a highly standardized first generation of these assets.

Several key variables can improve the incentivizing dimension of an EE operation, such as the growth of energy prices which may become very significant[3]; the amortization period (which may be 30 years or longer); changes in the price of carbon; and the share of non-energy works (compliance with standards, etc.). The implementation of deferred payments – during the duration of the works – and of progressive annuities accompanying the growth in energy and carbon prices should be considered.

In addition it will also be essential to mobilize the already existing resources that are competitive in terms of duration or rates, such as financing facilities from the EIB or from the Fonds d’épargne managed by the CDC.

Optionally, the ESFA itself should be able to grant loans. This would be required in the case of another collapse of the financial system, or would be useful to finance renovations that are not seen to be profitable enough to be financed by commercial banks.

On the other hand, the ESFA project aims to use industrial and economic levers to achieve massive volumes of operations as well as costs reductions and performance improvements: (1) economies of scale from the start of the project thanks to the significant volume of transactions at stake (more than 50% of a potential of € 5 to 10 bn/year) and thanks to the standardization of processes and contracts for all stakeholders; (2) the pooling of projects to reach minimum amounts for each operation (€ 50 to 100 million?) by pooling national and local beneficiary administrations; (3) technological progress achieved by private operators and their progress in the EE learning curve during the 10 years of the ESFA project, with results which will probably depend on the type of renovation works. The potential of these cost reductions must be further analyzed (information from industrial actors, benchmark, analyses by segment, …).