SFTE’s technical proposal for an EU economic recovery plan


1.       Financial, industrial and political tools

At the core of the scheme, the SFTE will provide a high-quality guarantee (counter-guaranteed by the European Union)[1] for dedicated loans by commercial banks. Given the intrinsic low-level risk of the SFTE project, the EU’s guarantee will be a risk-sharing participation mechanism (“first-loss tranche” where the EU would bear 10% of the downside risks). The implementation of the scheme will be entrusted to the EIB by means of indirect management. The EU’s guarantee (with the payment of a commission fee by banks) is necessary to improve the investment climate and enable the creation of a new market of green securitised assets. The level of the guarantee should decrease in the medium term, with the appraisal of the low-level intrinsic risk of operations by financial markets and rating agencies improving over time. Simple, transparent and safe securitisation will enable the refinancing of these very long-term loans – high-quality “green bond” infrastructure assets –, by the EIB and institutional investors.

2.       Energy Performance Contracting (EPC) as a key public policy tool

EPC is perfectly adapted to investment in the energy renovation of public buildings. It is based on a contractual commitment to achieve a given energy-efficiency target, subject to actual and systematic ex post monitoring. AFTER proposes several adaptations to EPC that will increase its integrity and serve to justify European and national investment through demanding impact assessments. Moreover, EPC benefits from strong European support (“EPC Campaign” of DG Energy, Energy Efficiency Directive, IEE, JRC work on the ESCOs market, EESI 2020, etc.). In a nutshell, AFTER’s proposal represents a shift from tailor-made to standardised, ready-made EPC projects, for wide-scale use with the help of the EU guarantee.

3.       A massive impact without increasing the public debt

The programme will benefit from: (1) an off-balance sheet EU guarantee and (2) the funding of projects under EPC partnerships (PPP-EPCs) that transfer a significant level of risk to private operators or semi-public companies. Like other institutions in Europe with which it is in contact, AFTER is calling for technically limited changes to the European accounting framework so as to better adapt it to energy-efficiency improvement projects: the accounting treatment of PPP-EPCs outside the scope of public debt is paramount to bringing about a change of scale in Europe. On the basis of a 10% “first-loss” guarantee, the capped guarantee for +€100bn projects would amount to €10bn. Given that the intrinsically low-level risk being guaranteed primarily consists of the default risk of governments and local authorities, risk weighted asset (RWA) calculations should imply a very low level of equity for the SFTE.[2]



[1] See the PF4EE (Private Financing for Energy Efficiency instrument) initiative.

[2] Without taking into account the first-loss guarantee mechanism, or the state/local authority building shares, a [2%-20%] RWA on 8% for €100bn of guaranteed risks would give a [€0.16bn - €1.6bn] target. €400m of capital for the SFTE should be an accurate estimate.

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