Energy Efficiency Financing (Podcast)

[00:00:04.930] – Aristeidis Tsakiris
Hello and welcome to the podcast series Scaling Up Energy Efficiency. This is episode six, and today’s topic is Energy Efficiency Financing. We are podcasting from Denmark, a country that managed to increase by over 80% GDP since the 1980s without increasing domestic energy consumption. My name is Aristeidis and I work as a project officer at the Copenhagen Center energy Efficiency, a part of the UNEP Copenhagen Climate Center. So, without further ado, here is your host, Gabriella Prata Dias, senior Advisor, who will moderate today’s podcast.
[00:00:50.260] – Gabriela Prata Dias
So, good afternoon. Today with me I have Brian Dean, who is the head of energy efficiency at SEforALL and the executive director of the International Copper Association with Stephen Kukoda. I’m Gabriella Prata Dias and I am working at UNEP Copenhagen Climate Center, specifically at Copenhagen Center on Energy Efficiency. And we are doing today a podcast about energy efficiency and finance because this week we are hosting here in Copenhagen in the UN City, an event about energy efficiency and finance, gathering the industry, the experts and the finance sector. I would like to have a discussion with our guests today about this exact topic, energy efficiency and finance. And I would like to start with Brian Dean about a recent initiative that was launched, which is called Mission Efficiency. And I would like to know more about this initiative and who are the partners of this initiative.
[00:01:54.720] – Brian Dean
Excellent. So Mission Efficiency is really, I would consider, to be an ecosystem of partners that really started with the launch of the Copenhagen Center on Energy Efficiency in 2013 and following on in 2014 with the creation of the Energy Efficiency Accelerator platform within SEforALL and the Energy Efficiency and Emerging Economies program in the International Energy Agency. In 2019, these initiatives came together to say, okay, how can we do more faster on energy efficiency? How do we get global progress on energy efficiency? And so what was created was the 3% Club on energy efficiency. That was a collection of commitments, a collection of countries and partners that came together supporting global progress in an effort to make this a more intuitive and inclusive initiative. We’ve come out most recently with Mission Efficiency, an attempt to elevate energy efficiency in the global agendas, improve the narrative as it may be, support energy efficiency, including the technical assistance that many of our partners do a really great job on globally, and then invest in energy efficiency. Of course, that’s what this charette is going to help us dig into, is investing in energy efficiency.
[00:03:15.390] – Gabriela Prata Dias
Thank you, Brian. And what about the International Copper Association? Why is the International Copper Association Association involved in mission efficiency? What’s your role and what is the expected outcome of this?
[00:03:30.350] – Steven Kukoda
All right, the International Copper Association builds partnerships to make advancements against the UN SDGs, and in particular on SDG Seven. I feel that we’re particularly strong on the energy efficiency side. We bring more than 20 years of experience in terms of helping government set policies in terms of advocacy and in terms of technologies. On the partnership side, we’ve been with mission efficiency since the very beginning, and our flagship program in this space is called United for Efficiency, or U4E, which is transforming developing world’s economies towards energy efficient appliances, lighting and industrial equipment. And U4E is actually addressing more than half of global electricity consumption. Most recently, we launched an initiative at the SEforALL Forum last month called GEAR, or Grid Efficiency and Resilience. And GEAR aims to, as the name implies, to make grids in Africa more efficient, so to increase the supply of electricity available to African consumers and businesses without increase in power generation. And how do you do that? Through energy efficiency. So we’re committed to the platform and glad to be here in Copenhagen this week.
[00:04:45.160] – Gabriela Prata Dias
Thank you, Steven. And lately we’ve been becoming quite vocal about this disconnect between energy efficiency and finance. Why do you think this is something that is coming up and what do you think exactly is happening between energy efficiency and finance and around the world of investment in this effort?
[00:05:07.050] – Steven Kukoda
Well, maybe to frame the discussion, the International Energy Agency, the IEA, every year publishes their status report on energy efficiency. And invariably they say we need to triple the investments in this space. And let’s not forget that energy efficiency is over 40% of the Paris agreement. It’s more than renewables, it’s more than electromobility, but the investments just aren’t happening there. I’ve reflected a lot on this, and the easy answers are there’s a lack of awareness. And that definitely is true for energy efficiency. That just seems to be an ongoing issue. We hear that the projects maybe are small, they’re fragmented, they’re more difficult. Let’s say you can see a solar farm or wind farm and there’s something to look at. And for the financiers, it’s a bit easier. Right? Energy efficiency is more difficult. But if I could point to one reason why there’s a disconnect, I think it’s on our side, the partnership side. These energy efficiency accelerators. Under Mission efficiency, we all bring this technical expertise. We know the work that needs to be done. We’re good at building partnerships and raising awareness and working with governments, but we’re not speaking, I’m convinced, the same language as the finance community. So maybe the way we’re defining the projects, they just aren’t bankable. So I’d like to frame the discussion this week around that idea. Let’s acknowledge that we need to be speaking differently with one another, but then an acknowledgement also that this work needs to be done and that we’re going to work together to take this work forward.
[00:06:46.180] – Gabriela Prata Dias
Yeah, thanks. And Brian, Steve just mentioned about the accelerators. Would you agree with the statement that there is a fundamental disconnect, knowing that there is already some background work? What’s your view on this?
[00:07:02.730] – Brian Dean
Yeah, I think as a community part of this energy efficiency ecosystem, the accelerators, I think they’ve done a great job, particularly with the technical support, creating that enabling environment for investment, but not necessarily not all of the accelerators actually doing the job of taking it to the next level and directly engaging with investment. Now, the District Energy and Cities Initiative, they have actually helped mobilise funding directly for investing in District energy systems for cities. But the other accelerators, they cross six sectors. There’s five initiatives United for efficiency, as Steve mentioned, is taking the appliances equipment, but also the lighting sectors and supporting global progress. A big chunk of that effort is minimum energy performance standards, model regulations, and making sure that again, that it’s possible to invest in energy efficient equipment and appliances, consumer products as it may be. The building efficiency accelerator, which recently also became also the Zero Carbon Building Accelerator, has done a great job of focusing on what it takes at the city level to have a project, have a policy and tracking progress. So there’s a little bit of, you could say city level pilot scale investment, but not grand scale investment that Steve was mentioning that we actually need and is requested. The industrial energy accelerator, this one has been focusing on getting energy management system in place and working with the industries to identify and audit their own processes. So that again enables investment. But again, it’s not the grand scale investment that we might need. And the Global Fuel Economy initiative with the transport sector, this has worked across the most countries, setting up the fuel economy standards that we all know our vehicles have, but again, it’s enabling the investment in more efficient vehicles, but again, not necessarily a grand scale investment in, say, electric vehicles. So I think we’ve set up these sectoral accelerators in a way that we’re enabling investment, but not pushing investment. And I think that’s one of the things that we can really dig into over the next couple of days, in particular with the charette tomorrow.
[00:09:45.490] – Gabriela Prata Dias
Yeah. And Brian, you mentioned scale, and I turn again back to Steve. I mean, such a strong industry as the international copper industry, it is interesting how to see how the private sector is mobilising to push for more investment in energy efficiency. In your view, is it just about scale? What exactly needs to happen from the side of the financial institutions? What’s your view on what needs exactly?
[00:10:18.730] – Steven Kukoda
I think I’ll build off of what Brian said. Speaking about enabling environments, I mentioned that we need to, according to the IEA, we need to triple investments in energy efficiency if we’re going to have energy efficiency meet its contributions to the Paris Agreement. I saw speaker from the World Bank before Covid, who stated that increase in investment actually maybe closer to nine or ten X. But what he said is, don’t focus on that number so much. It’s important. But what really struck me is he said if that inefficient pot of money less than 1% goes to capacity building and technical assistance. And this is what’s needed to create these enabling environments that Brian spoke about. Without doing that upfront work in countries, in cities that will define the big projects and bankable terms, we’re never going to see this scale up in energy efficiency. So another call to action, I would say this week, is a recognition that we need to finance this capacity building and technical assistance, knowing that it’s not going to be the profitable part of the project, it’s going to be the part that leads to the profitable part of these big energy efficiency projects that we all want to see.Organizations like the Global Environment Facility, the Green Climate Fund, they recognize the importance of capacity building and technical assistance that upfront work. So I’d like to see a broader recognition from the finance community that they are willing to come in and to finance that part of the work so that we can get to those scalable projects, those big bank of projects that we keep speaking to.
[00:11:58.890] – Gabriela Prata Dias
Yeah, but one of the important roles is the public sector, government, institutions, etc. How do you see this, all this coming together, Brian, from your perspective?
[00:12:12.200] – Brian Dean
It’s interesting when we think about investment in energy efficiency from the public sector. The private sector is about 90% to 95% of the actual investment. When you buy an efficient vehicle or an efficient home or an industrial processes, these are always private sector investments. So the government does have that 5 to 10% of investment that’s needed and certainly need to ramp it up. But I think the biggest thing that governments need to do is actually to put the pieces in place that can enable investment that could be developing a Super ESCO as India did with Energy Efficiency Services Limited. That’s a government and utility backed energy service company that is enabling bulk procurement of energy efficient products and reducing the cost of energy efficiency. That is a great use of the public sector and public sector investment. In fact, other approaches from the public sector, of course, are putting together the actual policies that would enable the banks to make those investments. Could that be around backing the investments in energy efficient products that are maybe meeting a certain standard that the government would back those loans or enable the financial institutions to put equity investment in? There’s a number of things that the public sector and the government can do at the national level like that to put the pieces in place for investment. Now, city scale, of course, at the city scale, there are things regarding the transport mobility sector that the city itself needs to invest in trees on the street to reduce the urban heat island effect, to reduce the cooling impact. There’s a number of sort of city scale investments that can be made. So national government, maybe it’s setting up the pieces that are needed. City scale, it’s actually investing in projects, but the majority of the investment is still going to be private sector.
[00:14:26.710] – Gabriela Prata Dias
But one thing from our work here in Copenhagen, when we work with developing countries and emerging economies, we hear a lot that the finance sector mentioning, yeah, there’s a lot of money around there, but there are no good projects. This question is to both of you. Would you agree with this statement and do you think this is the reality and what needs to happen so that we can change this mindset? Let’s start with you, Steve.
[00:15:01.330] – Steven Kukoda
I want to be able to say that there’s no shortage of good projects, but if we’re being honest with each other, I think that the real answer is that there may be a shortage of bankable projects, is what it comes down to. Without repeating myself too much, I think that as an energy efficiency community, we need to be honest and come to terms with that. Maybe we’re just not developing projects in the right way, so we see the charette as a way to maybe reverse that trend. It has to begin somewhere. Let it begin this week.
[00:15:34.670] – Gabriela Prata Dias
Would you agree with that, Brian, having both of experts in the finance sector speaking the same language and reversing this trend?
[00:15:41.900] – Brian Dean
Yeah, I do think the technologies are there. I think the business innovation is available. I think putting those together, like Steve said, into projects, I think the combination of the technology and the business model is maybe the weak link. I do think that there’s a narrative problem, though, as well. And if banks don’t understand what an energy efficiency project is, then it’s hard to have the banker say, yes, they’re happy to invest in that, and they recognise the benefits of energy efficiency, because many of the benefits of energy efficiency are not actually the energy or the energy cost savings. There’s many other benefits that either go to the society or the individual user. You would never buy windows just for the energy savings of the windows, but you get the noise reduction, you get the improved comfort and other aspects of those energy efficient windows. And so I think there’s a narrative problem there that I think could be improved.
[00:16:48.200] – Gabriela Prata Dias
Yeah, the multiple benefits of energy efficiency exactly stated. So this week, Brian, we are gathering the industry, the experts in the finance sector, in our energy efficiency and finance charrete, an event that we hope to work together with all these partners. How would you measure the success of this event? How would you like this to end up? What would be the end message?
[00:17:19.250] – Brian Dean
Yeah, I think for me, this event would be successful if we’ve had a really engaging time of brainstorm with a little bit of sense of humor and the ability for us to come together and think outside the box. But recognizing that, as I was saying earlier, there’s technologies out there, there’s financial solutions out there, there’s business model solutions, if we can put these pieces of the puzzle together creatively as a brainstorm, I think it would be a really successful event.
[00:17:51.230] – Gabriela Prata Dias
And what about you, Steve?
[00:17:52.800] – Steven Kukoda
I agree completely with Brian on that. I want us to frame these next days under the notion that, as I said earlier, energy efficiency is the largest share of the actions to achieve the Paris agreement and it’s not receiving the investment. But if we accept that the work needs to be done, I want the message to the finance community to be that you’re no longer allowed to say no to this work. You’re allowed to say not this way, and let’s work together to make these projects bankable. So an outcome for me would be a commitment from both sides that we’re going to use this as a stepping off point and that we’re going to agree to continue to work together, close contact with each other between now and COP 27, and then at COP 27, I would love to be able for us to stand forward as a united community around this topic, to say we’re doing something finally on energy efficiency and financing. I think we found a way forward and then we’ve got something now that we could really build upon.
[00:19:01.430] – Gabriela Prata Dias
That’s great. Well, let’s hope for the best and we are surely working towards that direction. And thank you very much, Brian and Steve, for being with us today. Let’s hope we can soon make another podcast and register the success of this event and the success of energy efficiency finance advancement. Thank you very much to our listeners and we close here. Thank you.
[00:19:32.250] – Aristeidis Tsakiris
Thanks for listening to the podcast Energy Efficiency Financing with Stephen Kukoda, Brian Dean and Gabriella Prata Dias. If you liked our show, share it on your social network. And if you want to know more about today’s topic, check the Copenhagen Center on Energy Efficiency web page. Stay tuned and subscribe to receive notifications about our next podcast. See you at the next episode. And do not forget, energy efficiency is a journey, not a destination. Cheers.