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12 January 2022

Joining forces to finance renewables: the investment platform model

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About 75% of the EU building stock is not energy efficient. Four pilot regions are testing new solutions to leverage more citizen funding and spread the culture of energy transition

Santa Casa da Misericordia de Serpa is a well-established Portuguese social institution that runs hospitals, nursing homes and housing projects for elderly. Thanks to a 28,000 euro crowdlending campaign, one of these entities has been equipped with a photovoltaic power station. In so doing, it will not only have access to clean and cheaper energy, but also play its part in countering the climate change. Indeed, according to The 2020 Global Status Report for Building and Construction, emissions from the operation of buildings hit their highest-ever level in 2019, pulling the sector away from its potential to slow climate change and to contribute to the goals of the Paris Agreement. About 75% of the EU building stock is not energy efficient yet, which means much energy keeps on being wasted.

To minimize energy loss, existing buildings need to undergo energy efficient renovations, which might result in major investments. “In Portugal there’s a strong need for such projects,” says Luis Couto, Co-founder and Chief financial officer of the impact investment platform GoParity, which coordinated the crowdlending campaign for Santa Casa da Misericordia de Serpa. “The potential to cut CO2 emissions by improving energy efficiency of buildings is huge. But what we need is more funding: more private funding and more citizens funding”. The EU-funded project CitizEE aims at filling this gap, by supporting authorities in scaling up investments for energy efficiency in the building sector and leveraging citizen private investments. Four pilot projects have been selected to test this innovative model and its replication possibilities at regional or country level: in Lithuania, Croatia, Belgium and Portugal. “A retrofit in a school, for instance, is often too expensive for the local municipality,” says Sonja Wilhelm, CitizEE project coordinator. “That’s why we try to combine different financing sources such as crowdfunding, private investors and banks with public financing instruments, which are available at the national or European level.”

Establishing investment platforms can help in this respect. Backed by the InvestEU Programme, such facilities bring together all market players, including citizens, and they channel public and private financing from several co-investors. Jean-François Marchand is senior partner at the consulting firm Energinvest. “Investment platforms are tailor-made to crowd in public and private funds, with the latter playing the role of protecting the co-investors,” he says. “You can then use the funds raised through the investment platform to go to the market, either directly or through a financial intermediary. You benefit from the increased leverage capacity to attract additional co-investors. And when it comes to the project itself, the investment platform can help once again crowding additional funds among its final recipients.”

Investment platforms also act as aggregators of energy efficiency projects which are either too risky or too small for the European Investment Bank and other investors. They try to overcome specific market failures that occur when investment projects are not financed on market basis by commercial players. “There are different kinds of market failures,” explains Mr. Marchand. “Some of them are related to the risk appreciation by the potential investors. But we also speak of access to market or access to funding market failures, when there is a lack of liquidity on the market or a lack of appropriate financing offer. And then we have viability market failures, when projects have the potential to be socially profitable, but don’t meet the profit requirements of the market”. Within the investment platform, the role of public funding is to help overcome these barriers, mainly with so called first loss- or concessional funds. “Concessional funds can provide financing at below the market terms, whereas first loss aims at protecting the investors from potential losses, which might prevent them from taking a risk.”

Run by VIPA, a national promotional institution with a strong knowledge of financing instruments, the Lithuanian pilot project is the most advanced among the four CitizEE pilots. Like for the Portuguese one, the investment platform has been already established and the work is now in progress to implement a citizen financing scheme to attract and leverage citizen funds more effectively. “This scheme will be implemented through P2P platform operators,” says Asta Gladkauskiene, VIPA Head of private clients division. “We will provide it with the funds collected through our investment platform. Then the crowdfunding platform will attract additional citizen funding. All these resources will then be provided to the consumers, in the form of loans to finance their solar photovoltaic systems.”

The target of the Lithuanian government is to increase the share of prosumers, consumers who also produce electricity, up to 30% by 2030. Despite the political will, the local banking sector is still reluctant to fund this kind of project. “If there were plenty of banks already providing consumers with financing for photovoltaics, we wouldn’t enter the market,” says Ms. Gladkauskiene. “But what we do observe is that in Lithuania there is basically just one and it mainly addresses low-risk consumers. So, there’s still a gap to fill, and that’s what pushes us to go on.”

Developing such innovative solutions remains though a very complex, technical and demanding process, says Mr. Marchand. “You need to deal with co-investors, you need to develop financing products, you need to draw up agreements with financial intermediaries. So, it’s much more difficult for pilot regions which have less experience”. In addition to the Covid-19 pandemic, last year Croatia had to cope with two relatively strong earthquakes. Velimir Šegon is deputy managing director at Regea, the regional energy agency running the Croatian pilot project. “We’ve experienced several delays, but considering all that happened, I think they were more than justified,” he says. “Beside this, the major barrier for us was the lack of money and expertise to do all the required analysis and preparatory work. In a country like ours, lacking knowledge and experience, three years is just not enough to set up an investment platform”.

At the end of October, Zagreb’s city assembly adopted an ambitious programme to install solar panels on the roofs of all kind of private and public buildings. “A lot has still to be done, but the Croatian national legislation is evolving too,” says Velimir Šegon. “Thanks to the pressure and the support of the European Commission, in September 2021 a new electricity market law was adopted, which introduces explicitly energy communities”. If a stronger political will is much needed, says Mr. Couto of GoParity, “involving citizens in renewable energy projects can contribute to speed up the change. Not only does it help to raise the social awareness and change people’s behaviour in their everyday lives, but it also puts more pressure on the political leadership”.

At the COP26 in Glasgow, 44 new businesses from all over the world joined cities like Paris, Tokyo and New York and the Spanish regions of Navarra and Catalonia, to sign the "Net”, a call on the building and construction sector to take action to decarbonize the built environment. City leadership in using green materials and constructing energy-efficient buildings, powered by renewable energy, “is essential to achieve net-zero emissions by 2050,” said UN Secretary General, António Guterres on the World Habitat Day in October. provides its content to all media free of charge. We would appreciate if you could acknowledge as the source of the content.