International Conference RES & Energy Savings in Islands Milos, October 2009 EIB Financing of Renewable Energy Projects

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1 International Conference RES & Energy Savings in Islands Milos, October 2009 EIB Financing of Renewable Energy Projects Alessandro Boschi Senior Engineer, Projects Directorate European Investment Bank

2 Outline Energy scenarios and EU targets EIB and Energy EIB Loans to Energy EIB s Project Cycle Specific issues in islands EIB island cases Covenant of Mayors Technical assistance instruments

3 World Energy Scenarios - High and volatile energy prices - Security of supply concerns - Climate change - Fast technological progress, notably in RES and EE

4 EU Climate and Energy Package It has set the following targets for 2020: - cutting greenhouse gases by at least 20% of increasing use of renewables to 20% of total energy production - cutting energy consumption by 20% of projected 2020 levels - increasing use of biofuels to 10% of total transport fuel Required investments to reach these targets: - EUR n bn in renewable energy projects - even more for energy efficiency projects, notably in buildings and transport

5 The European Investment Bank - The EU Institution for long term financing. Created in 1958 by the Treaty of Rome - Objective to support EU policies, including the energy policy - Five priority lending areas in Energy : > Renewable Energy > Energy Efficiency > RDI in Energy > Security and diversification of internal supply (including TENs) > External energy security and economic development

6 Recent EIB activity in the Energy Sector - Approval of an energy and climate change package of EUR 6bn of additional lending in 2009 and Creation of the Marguerite Fund for equity and quasi-equity projects - Launching a new TA facility, together with the EU Commission, in support of energy efficiency improvements in urban areas - Creation of Global Energy and Renewable Energy Fund (GEEREF) - Establishment of the Post-2012 Carbon Credit Fund - Launching of carbon footprint measurement exercise - Review of Statement on Environmental Principles and Standards

7 EIB Approach to Renewable Energy - Distinguish between: > Mature commercially available technologies (onshore wind, hydro, geothermal, biomass) > Emerging RE technologies (PV, solar thermal, 2 nd generation biofuels, offshore wind) - Structured Finance Facility (SFF/RSFF) to support up to quasi-equity type risks

8 EIB Renewable Energy Loans : EUR 214m/year : EUR 442m/year 2007: EUR 2bn 2008: EUR 2.2bn Total energy loans in 2008: - EUR 8.6bn within the EU-27 - EUR 1.6bn outside the EU-27

9 Benefits of an EIB Loan Benefits of competitive funding passed on to clients: Large amounts (typically > EUR 50m) Broad range of currencies Long maturities Attractive interest rates Catalytic effect on participation of other banking or financial partners

10 Energy loans in the EU in 2008 (EURm) TYPE OF PROJECT PRIORITY ENERGY PROJECTS (excluding TENs) Energy Efficiency Renewable Energy Diversification and Security of Internal Supply TEN-ENERGY Priority TEN-E of European Interest Priority TEN-E of Common Interest TEN-E of Common Interest TOTAL Loan Amount 6, ,169 3,098 2, ,895 8,722

11 Energy loans outside the EU in 2008 (EURm) TYPE OF PROJECT Renewable Energy Electricity and Gas Networks Thermal Generation TOTAL Mediterranean Countries ACP States + S.Africa Asia Eastern Europe Loan Amount ,

12 The EIB project cycle

13 Project Requirements Projects must: Correspond to at least one of the EIB objectives Comply with social and environmental EU standards Comply with international procurement regulations Be technically sound Be financially viable Show an acceptable economic rate of return

14 Specific issues in islands Natural gas rarely available Higher electricity generation costs Normally isolated systems Load distribution pattern Grid connection issues Site constraints Logistic constraints Higher investment costs Other specific issues

15 Case: Orites 82 MW Wind Farm (Cyprus) Specific issues : First wind farm in Cyprus Only oil-fired generation 2020 RES EU target of 13% (currently 2.9%) Isolated electrical system Low wind resource Natura 2000 Promoter with limited track record Difficult financial climate Actions taken : Ad-hoc economic approach Additional flora and fauna surveys Detailed grid study Appropriate assessment of Natura 2000 Environmental Management Plan Project Execution Plan Approval by EU of feed-in tariff system Following the financing of Orites, EIB received the Euromoney Renewable Lender of the Year Award in September 2009

16 Other EIB projects on islands GREECE WIND ENERGY : Promoter : PPC Renewables Estimated project cost : 65 Million Euros Project : small scale (avg. 4 MW) wind farms in various Cyclades islands (35MW in total) Good wind resource Difficulty to attract turbine suppliers, high investment cost Specific feed-in tariff for non-interconnected islands No EIA required below 5MW in Greece Some licensing/planning issues Project currently under appraisal ELECTRICIDADE DA MADEIRA II : Promoter: Empresa de Electricidade de Madeira Estimated project cost: 160 Million Euros Project: upgrade of generation, transmission and distribution Includes pumped storage, dual fuel engines and wind Wind energy balanced by reserve peak and baseload capacity Project currently under appraisal

17 Covenant of Mayors Formal commitment by the signatory city councils to go beyond the EU objectives in terms of CO2 reduction through the implementation of sustainable energy action plans with concrete measures The EIB is fully involved in the Covenant and the launch, with Commission funding through the IEE programme, of technical assistance facilities to speed definition and implementation of financial instruments adapted to city needs In support of this initiative the EIB can contribute with the following financial instruments: > individual loans to finance large projects > global loans to financial intermediaries or framework/investment loans > combining grants with loans > Jaspers > Jessica > Elena

18 JASPERS Joint Assistance to Support Projects in European Regions JASPERS is a technical support facility to help the 12 Member States which joined the EU in 2004 and 2007 identify and prepare projects potentially eligible for assistance under the EU Structural Funds. JASPERS is managed by EIB and the other partners are the European Commission, EBRD and KfW, which joined JASPERS in 2008 as an associate partner. JASPERS' main objective is to help these Member States make use more rapidly and more effectively of the grant finance made available by the European Union for the implementation of EU cohesion policy during the period The support provided by JASPERS is comprehensive and covers all stages of the project cycle from the initial identification of a project through to the grant application to the Commission. The aim of the initiative is to improve the quantity and the quality of projects coming forward for approval, in order to benefit not only Member States but also the Union as a whole through the implementation of the convergence objectives. JASPERS assistance is available for infrastructure projects, primarily involving the upgrading of transport networks, environmental improvement and investments enhancing energy efficiency and using renewable energy. In addition, the improvement of urban transport is also covered, as well as large projects in other sectors eligible for EU assistance such as health, R&D and urban redevelopment. JASPERS assistance is provided free of charge to the beneficiaries and there is no obligation on the Member States to use JASPERS.

19 JESSICA Joint European Support for Sustainable Investment in City Areas The initiative is being developed by the European Commission and EIB in collaboration with the Council of Europe Development Bank (CEB). Under new procedures Member States are being given the option of using some of their EU grant funding (the Structural Funds) to make repayable investments in projects forming part of an integrated plan for sustainable urban development These investments, which may take the form of equity, loans and/or guarantees, are delivered to projects via Urban Development Funds and, if required, Holding Funds EIB involvement in JESSICA is threefold: > advising and assisting national, regional and local authorities in implementing JESSICA > promoting the use of Urban Development Funds and best practice across Europe > acting as a Holding Fund, when requested by Member States or Managing Authorities Evaluation Study for Greece in 2008 showed the presence of great potential for urban development projects but also that success will depend on willingness and capacity of the public sector and on the launching of specific projects

20 ELENA European Local Energy Assistance Expected to become operational before the end of the year It is meant to be a technical assistance facility with the aim of supporting regional or local authorities in accelerating their investment programmes in the fields of energy efficiency and renewable energy sources. This grant support will be provided within the framework of the IEE II programme. Technical support may include feasibility and market studies, business plans, energy audits, preparation of tendering procedures etc. Hardware costs will not be included Investment programmes or projects will cover the following areas: public and private buildings, urban transport and local infrastructure The objective of ELENA will be that of increasing experience in developing investment programmes of a certain size, also by regrouping smaller projects in order to make them bankable Local and regional authorities or other public bodies from countries eligible under the IEE Programme, including those under the Covenant of Mayors initiatives, will be able to benefit from ELENA

21 Thank you For more information: EIB implements EU policies; a policy driven Bank