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OVERCOMING BARRIERS

TO INVESTING IN

ENERGY EFFICIENCY

UNITED NATIONS ECONOMIC COMMISSION FOR EUROPEUNITED NATIONS

NEW YORK AND GENEVA, 2017

II NOTE e designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations

concerning the legal status of any country, territory, city or area, or of its authorities, or concerning

the delimitation of its frontiers or boundaries. In particular, the boundaries shown on the maps do not imply ocial endorsement or acceptance by the United Nations. Mention of any company, licensed technology or commercial products does not imply endorsement by the United Nations.

ACKNOWLEDGEMENTS

e publication is a result of research undertaken in the framework of the United Nations Sabbatical Programme by Oleg Dzioubinski at the Copenhagen Centre on Energy Eciency serving as the Energy Eciency Hub of the Sustainable Energy for All (SEforALL) Initiative.

Valuable contributions at various stages of the research and preparation of the publication have been

received from the following organizations and experts: •e Copenhagen Centre on Energy Eciency and UNEP DTU Partnership, in particular, John Christensen, Vijay Deshpande, Tim Farrell, Susanne Konrad, omas Krader, Dan Howis Lauritsen, Mark Lister, Ksenia Petrichenko, Milan Rusnak, Romanas Savickas, Marco Schletz, Peter Skotner, Aristeidis Tsakiris, Xiao Wang, and Xianli Zhu. •e UNECE Group of Experts on Energy Eciency and its Bureau, in particular Stefan Buettner, Aleksandar Dukovski, Natalia Jamburia, Hannes Mac Nulty, and Zlatko Pavii. •e UNECE Sustainable Energy Division, in particular, Viktor Badaker, Scott Foster, Stefanie

Held, and Iryna Lagodna.

• Respondents to the survey on overcoming barriers to investing in energy eciency. •Participants of the workshop “Creating the Business Case for Energy Eciency: Engaging Governments with Industry" at the Eighth International Forum on Energy for Sustainable Development (Astana, 13 June 2017) and the session “Energy Eciency" at the 10th Local Economic Development (LED) Forum (Tbilisi, 13 September 2017).

ECE/ENERGY/117

UNITED NATIONS PUBLICATION

Sales No.

15.II.E.9

ISBN 978-92-1-117091-7

eISBN 978-92-1-057461-7

ISSN 1014-7225

Copyright © United Nations, 2017

All rights reserved

Front cover photo: Colourbox.dk / Alex Lukin

Design and layout: Kowsky

III

FOREWORD

Energy eciency is one of the objectives of the Sustainable Energy for All (SEforALL) Initiative and one of the targets of the Sustainable Development Goal (SDG) 7. e aim is to double the global rate of improvement in energy eciency by 2030. While signicant progress is being made in energy eciency, the improvements are not fast enough to reach the rate necessary for limiting global temperature rise to no more than 2 degrees Celsius (and preferably 1.5 degrees) by 2050 as stated in the Paris Climate Agreement. is publication looks into barriers to investing in energy eciency and ways to overcome them. A vast body of research on the topic of energy eciency investments and barriers that prevent the energy eciency potential to be fully realized exists. However, it is often the perception of those who work in the eld of energy eciency as a practitioner that may provide additional and valuable insights on the challenges and solutions for overcoming barriers to energy eciency investments. To obtain this input a survey that looks into various aspects of the problem was developed and widely distributed among energy eciency experts representing governments, private sector, nancial institutions, international and intergovernmental organizations, non-prot organizations, academia, and independent experts. e analysis of the survey and its conclusions and recommendations will serve as a useful tool for energy eciency community, rst of all for the policy makers who can apply the results to the situation in their countries and nd approaches to improve investment climate for energy eciency. is may include, where appropriate, improving regulatory framework, including implementation and enforcement; making nancial institutions more aware of energy eciency nancing and reducing perception of its high risk; raising awareness about the multiple benets of energy eciency projects; and other measures as recommended in this publication. is publication is an example of productive collaboration between the United Nations Economic Commission for Europe and the Copenhagen Centre on Energy Eciency, part of the UNEP DTU Partnership. We expect this kind of cooperation to continue between our organizations and with other players in the area of energy eciency for the benet of UNECE member States and countries outside the UNECE region.

Olga Algayerova John M. Christensen

Executive Secretary Director

United Nations Economic Commission for Europe UNEP DTU Partnership IV V

CONTENTS

FOREWORD ........................................................................ LIST OF TABLES ........................................................................ LIST OF FIGURES ........................................................................ ACRONYMS AND ABBREVIATIONS ........................................................................ ................IX EXECUTIVE SUMMARY ........................................................................ INTRODUCTION ........................................................................

ANALYSIS OF THE SURVEY ON OVERCOMING BARRIERS

TO INVESTING IN ENERGY EFFICIENCY ........................................................................

.......5

1. Assessment of existing investment opportunities for energy eciency

and the level of investment in energy eciency received ..........................................6

2.Regulatory and institutional support for investments in energy eciency ...........7

3. Role of international assistance in increasing the level of energy eciency

investments ........................................................................

4.Financial environment for energy eciency investments ........................................12

5. Availability and use of nancing for energy eciency projects implementation ..15

6. Main barriers to increasing investment and nancing ows to

energy eciency projects ........................................................................ .........................20

7. Ways to increase energy eciency project investment viability .............................22

8.Assessment of measures in industrial energy eciency ...........................................24

CONCLUSIONS AND RECOMMENDATIONS ........................................................................

31

ANNEX S

URVEY OVERCOMING BARRIERS TO INVESTING IN ENERGY EFFICIENCY ....3 REFERENCES ........................................................................ VI

LIST OF TABLES

TABLE 1.

Perception of availability of investment opportunities for energy efficiency and the level of investment in energy eciency received in individual countries .......................6

TABLE 2.

Perception of the strength of support of the regulatory framework in a country for enabling energy efficiency investments vs. existence of the regulatory framework in energy efficiency received in individual countries

TABLE 3.

Existence and effectiveness of national institutions responsible for energy efficiency investment policies in individual countries

TABLE 4.

Effectiveness of international assistance in increasing the level of energy efficiency investments in individual countries ...13

TABLE 5

. Assessment of financial environment for energy efficiency investments in individual countries

TABLE 6.

Price of energy as an incentive to implement energy efficiency measures in individual countries

LIST OF FIGURES

FIGURE 1A.

Type of organization represented by respondents (All countries) ....................5

FIGURE 1B.

Type of organization represented by respondents (UNECE region) ................5

FIGURE 2A.

Existence of particular types of legislation, programmes and policies to support investments in energy efficiency (UNECE region)

FIGURE 2B.

Existence of particular types of legislation, programmes and policies to support investments in energy efficiency (Sub-region of Eastern Europe, the Caucasus,

Central Asia, and the Russian Federation)

............8

FIGURE 2C.

Existence of particular types of legislation, programmes and policies to support investments in energy efficiency (Sub-region of Western Europe and North America) ........................................................................

FIGURE 2D.

Existence of particular types of legislation, programmes and policies to support investments in energy efficiency (Sub-region of South-East Europe) .....................8

FIGURE 3A.

Types of commercial financing available for energy efficiency projects implementation (All countries) ..............................16

FIGURE 3B.

Types of commercial financing available for energy efficiency projects implementation (Sub-region of Eastern Europe, the Caucasus, Central Asia, and the

Russian Federation)

FIGURE 3C.

Types of commercial financing available for energy efficiency projects implementation (Sub-region of Western Europe and North America) ...............................16 OVERCOMING BARRIERS TO INVESTING IN ENERGY EFFICIENCY VII FIGURE 3D. Types of commercial financing available for energy efficiency projects

implementation (Sub-region of South-East Europe) ................................................................16

FIGURE 4A. Available types of budget and donor financing for energy efficiency projects

implementation (All countries) ........................................................................

..............................17 FIGURE 4B. Available types of budget and donor financing for energy efficiency projects implementation (Sub-region of Eastern Europe, the Caucasus, Central Asia, and the Russian Federation) ........................................................................ FIGURE 4C. Available types of budget and donor financing for energy efficiency projects implementation (Sub-region of Western Europe and North America) ...............................17 FIGURE 4D. Available types of budget and donor financing for energy efficiency projects

implementation (Sub-region of South-East Europe) ................................................................17

FIGURE 5A. Most widely used types of financing for energy efficiency projects (All countries) ........................................................................ FIGURE 5B. Most widely used types of financing for energy efficiency projects (Sub- region of Eastern Europe, the Caucasus, Central Asia, and the Russian Federation) .......18 FIGURE 5C. Most widely used types of financing for energy efficiency projects

(Sub-region of South-East Europe) ........................................................................

.......................18 FIGURE 5D. Most widely used types of financing for energy efficiency projects

(Sub-region of Western Europe and North America) ..............................................................18

FIGURE 6A. Main barriers to increasing investment and financing flows to energy

eciency projects (All countries and UNECE region) .............................................................21

FIGURE 6B. Main barriers to increasing investment and financing flows to energy eciency projects (Sub-region of Eastern Europe, the Caucasus, Central Asia, and the Russian Federation) ........................................................................ FIGURE 6C. Main barriers to increasing investment and financing flows to energy

eciency projects (Sub-region of South-East Europe) ............................................................21

FIGURE 6D. Main barriers to increasing investment and financing flows to energy eciency projects (Sub-region of Western Europe and North America) ...........................21 FIGURE 7A. Main factors that can lead to increasing energy efficiency project investment

viability (All countries and the UNECE region) ........................................................................

.23 FIGURE 7B. Main factors that can lead to increasing energy efficiency project investment viability (Sub-region of Eastern Europe, the Caucasus, Central Asia, and the Russian Federation) ........................................................................ FIGURE 7C. Main factors that can lead to increasing energy efficiency project investment

viability (Sub-region of South-East Europe) ........................................................................

.......23

LIST OF FIGURES

VIII FIGURE 7D. Main factors that can lead to increasing energy eciency project investment

viability (Sub-region of Western Europe and North America) ..............................................23

FIGURE 8. Existence of an overall energy eciency/energy intensity (productivity) goal in a respondent"s company ........................................................................ ......................................25 FIGURE 9A. Main barriers faced by a company when considering investment in

industrial energy eciency (All countries and UNECE region) ............................................26

FIGURE 9B. Main barriers faced by a company when considering investment in industrial energy eciency (Sub-region of Eastern Europe, the Caucasus, Central Asia, and the Russian Federation) ........................................................................ ....................................26 FIGURE 9C. Main barriers faced by a company when considering investment in

industrial energy eciency (Sub-region of South-East Europe) ............................................26

FIGURE 9D. Main barriers faced by a company when considering investment in industrial energy eciency (Sub-region of Western Europe and North America) ...........26 FIGURE 10. Existence of an energy management system (EnMS) in a company that is

certied or implemented according to a specic standard ......................................................27

FIGURE 11. Energy eciency measures or projects implemented by respondents"

companies in the past three years ........................................................................

..........................28 FIGURE 12A. Main business benets to respondents" companies from implemented

energy eciency measures (All countries and UNECE region) ............................................29

FIGURE 12B. Main business benets to respondents" companies from implemented energy eciency measures (Sub-region of Eastern Europe, the Caucasus, Central Asia, and the Russian Federation) ........................................................................ ....................................29 FIGURE 12C. Main business benets to respondents" companies from implemented

energy eciency measures (Sub-region of South-East Europe) ............................................29

FIGURE 12D. Main business benets to respondents" companies from implemented energy eciency measures (Sub-region of Western Europe and North America) ...........29 OVERCOMING BARRIERS TO INVESTING IN ENERGY EFFICIENCY IX

ACRONYMS AND ABBREVIATIONS

BRICS Brazil, India, Russian Federation, China, and South Africa ECS

Energy Charter Secretariat

EE C CA RF

Sub-region of Eastern Europe, the Caucasus, Central Asia, and the

Russian Federation

EU

European Union

EU W

Sub-region of Western Europe and North America

EnMS

Energy Management System

ESCO

Energy Service Company

GEEE

Group of Experts on Energy Eciency

GTF

Global Tracking Framework

IEA

International Energy Agency

ISO

International Organization for Standardization

IPEEC International Partnership for Energy Eciency Cooperation Mtoe

Million Tonnes of Oil Equivalent

NGO

Non-governmental organization

OECD Organisation for Economic Cooperation and Development

PEEREA

Protocol on Energy Eciency and Related Environmental Aspects RISE World Bank"s Regulatory Indicators for Sustainable Energy SDGs

Sustainable Development Goals

SEE

Sub-region of South-East Europe

SEforALL

Sustainable Energy for All

UNECE

United Nations Economic Commission for Europe

USD

United States Dollars

X OVERCOMING BARRIERS TO INVESTING IN ENERGY EFFICIENCY

EXECUTIVE SUMMARY

Energy eciency is widely viewed as one of the most eective ways to achieve multiple economic, social and environmental benets and is at a core of making signicant progress towards Sustainable Development Goals (SDGs). It is also recognized that signicant progress is being made in energy eciency. However the improvements are not fast enough to reach the rate necessary for limiting global temperature rise to no more than 2 degrees Celsius (and preferably 1.5 degrees) by 2050 as stated in the Paris Climate

Agreement.

Increasing amount of investments in energy eciency are necessary to reach a Sustainable Energy for All (SEforALL) objective of 2.6 percent annual improvement rate of energy eciency. ese investments are increasing globally and have reached over USD 220 billion in 2015, constituting 12 percent of total energy investments. However, they are not happening on the scale necessary to achieve a breakthrough in energy eciency improvement (including reaching the SDG7 target 7.3 to double the global rate of improvement in energy eciency by 2030) and goals of the Paris Agreement. is study looks into barriers to investing in energy eciency and ways to overcome them. A vast body of research on the topic of energy eciency investments and barriers that prevent the energy eciency potential to be fully realized exists. However, it is often the perception of those who work in the eld of energy eciency as a practitioner that may provide additional and valuable insights on the challenges and solutions for overcoming barriers to energy eciency investments. To obtain this input a survey that looks into various aspects of the problem was developed and widely distributed among energy eciency experts representing governments, private sector, nancial institutions, international and intergovernmental organizations, non-prot organizations, academia, and independent experts. e United Nations Economic Commission for Europe (UNECE) Committee on Sustainable Energy and its Group of Experts on Energy Eciency (GEEE) has been actively engaged in the regulatory and policy dialogue addressing nancial, technical and policy barriers to improve energy eciency. At its third session in October 2016 in Baku, GEEE supported a policy analysis on overcoming barriers to investing in energy eciency to be conducted jointly with the Copenhagen Centre on Energy Eciency. is study is a result of research undertaken in the framework of the United Nations Sabbatical Programme by Oleg Dzioubinski at the Copenhagen Centre on Energy Eciency in close cooperation with Senior Advisor, Vice Chair of GEEE Tim Farrell, other sta members of the Copenhagen Centre on Energy Eciency, other members of the GEEE Bureau, sta members of the UNECE Sustainable Energy Division, and other energy eciency experts. e survey on overcoming barriers to investing in energy eciency has been conducted over the period 10 January - 7 February 2017. e survey was posted on the website of the UNECE and sent to the UNECE Group of Experts on Energy Eciency, the Committee on Sustainable Energy, the network of experts of the Copenhagen Centre on Energy Eciency, networks of other relevant organizations, and to other experts in the areas of energy eciency and sustainable energy. e survey was available in English and Russian. is report covers both the analysis of the rst (general) part of the survey and the second XI

EXECUTIVE SUMMARY

part with specic questions related to energy eciency in industry. e survey has elicited signicant interest among the energy eciency practitioners from various countries, organizations and sectors. In correspondence and conversations with respondents, they emphasized the relevance of the approach and questions and importance and value of the study. Many experts expressed their interest in receiving the results of the analysis. Based on the responses received and follow-up correspondence and conversations with selected exports, the analysis of barriers to investing in energy eciency and ways to overcome them has been prepared. e primary geographic focus of the survey is the region of the UNECE comprising its

56 member States

1 from Western Europe (members and non-members of the European Union), North America (Canada and the United States), South-East Europe, Eastern Europe, the Caucasus, Central Asia, Israel, Turkey and the Russian Federation. However the survey was conducted globally and results also cover countries outside the UNECE region. e analysis allowed to come to a number of conclusions and develop a set of recommendations. CONCLUSIONS ON THE STATUS OF ENERGY EFFICIENCY FINANCING

AND BARRIERS TO INVESTING IN ENERGY EFFICIENCY

1. Globally and in the UNECE region, there is a high or reasonably high potential for energy eciency investments. However this potential in many countries remains largely untapped. ere is a signicant gap between investment opportunities for energy eciency and the level of investments in energy eciency in most of the countries. 2. Most countries in the UNECE region have framework legislation for energy eciency and many have other supporting legislation, programmes and policies. In the sub- region of Western Europe and North America, essentially all components of the regulatory framework are in place and are considered to be relatively eective but not always providing very strong support and enabling energy eciency investments. In other parts of the UNECE region, the situation varies. Some lack by-laws, norms and standards, and specic programmes and policies. 3. In general, there is a good correlation between the existence of the regulatory framework and how well it supports and enables investments in energy eciency. For example, Germany possesses strong regulatory framework that ensures strong support for investments. In Azerbaijan and the former Yugoslav Republic of Macedonia, the regulatory framework is considered weak and it provides little support to investments. Belarus, Kazakhstan and Ukraine mostly have regulatory framework in place but the support it provides for energy eciency investments is not considered strong, particularly in Ukraine. 1

For the complete list of the UNECE member States see http://www.unece.org/oes/nutshell/member_States_

representatives.html. XII OVERCOMING BARRIERS TO INVESTING IN ENERGY EFFICIENCY 4. Institutions at the national level responsible for developing and implementing policies that support investments in energy eciency projects exist in the countries of the UNECE region. However assessment of their eectiveness dier among individual countries: strongest in Germany and Switzerland, and weakest in Albania, Azerbaijan, and the former Yugoslav Republic of Macedonia. Outside the UNECE region, India and Mexico are viewed as having eective national institutions to promote energy eciency. 5. Among the various levels of government, national authorities are generally considered to be providing the highest level of support for developing and implementing energy eciency projects compared to regional (provincial) and local (municipal). A few exceptions include Canada and the United States, where authorities at the provincial and state level respectively are providing more support than the national and local levels. In Ukraine, authorities at the local level are viewed as providing more support than at the national and regional (oblast) levels. 6. International assistance is viewed as moderately eective in increasing the level of energy eciency investments in most of the countries of South-East Europe, Eastern Europe, the Caucasus, and Central Asia. It is viewed as most eective in Albania, Armenia, Belarus, Croatia (new EU Member State), and Ukraine, while in Azerbaijan and the former Yugoslav Republic of Macedonia its eectiveness is assessed relatively low. Among the analyzed countries outside the UNECE region, eectiveness of the international assistance is highest in India and Mexico and lowest in Brazil.

7. Financial environment is not very favourable for investments in energy eciency.

Familiarity of nancial institutions with nancing energy eciency projects and measures is relatively low in many countries of the world, including developed countries and countries with economies in transition in the UNECE region. Financial institutions view nancing of energy eciency projects signicantly riskier compared to other types of business projects. Conditions for repayment and servicing energy eciency loans with savings generated from improved eciency are considered generally more favourable for projects in the public sector than for projects in the private sector but in most cases they are not too favourable.

8. Generally, the price of energy provides some but often insucient incentive for

improving energy eciency. However, situation with the energy pricing diers signicantly among countries. In the UNECE region, it provides a rather strong incentive in Ukraine and Armenia, a moderate incentive in Germany and Albania, and a very weak one in Croatia and Switzerland. Among the selected countries outside the UNECE region, the strongest incentive from energy prices is in Brazil and the weakest is in India.

9. Both globally and in the UNECE region self-nancing remains the most widely used

type of nancing of energy eciency projects followed by direct nancing from public budgets and debt nancing. At the same time, situation varies signicantly both between and within sub-regions. In the Caucasus and in Ukraine, donor funds is the most important type of nancing. In Croatia, the major role is played by Energy Eciency Funds. Financing through ESCOs is important in North America.

10. Low awareness about the multiple benets of energy eciency projects is viewed as

the main barrier to increasing investment and nancing ows to energy eciency XIII

EXECUTIVE SUMMARY

projects. Next important factors are lack of understanding of energy eciency nancing by banks and other nancial institutions; administrative barriers and bureaucracy; and low energy prices. Some countries have identied one or two barriers as particularly important: in Azerbaijan, it is lack of specic policies and legislation and low energy prices; in Belarus - diculties with obtaining commercial loans and other types of nancing; in Kazakhstan and Switzerland - low energy prices; and in Canada and Germany - low awareness about the multiple benets of energy eciency projects. 11. Tax incentives and low-interest loans for energy eciency projects are viewed as the most important factors that can lead to increasing energy eciency project investment viability in particular countries. ey are followed by stricter energy eciency standards; training and awareness programmes; improved legislation; and de-risking of investments through Government support programmes. Specic factors are identied in particular countries as the main ones: in Armenia, Belarus, Croatia, and Ukraine - low-interest loans for energy eciency projects; in Azerbaijan - improved legislation; in Kazakhstan - improved access to commercial nancing; in Germany - tax incentives; in the former Yugoslav Republic of Macedonia, two main factors are tax incentives and implementation of energy management systems in industry; and in Switzerland also two main factors - implementation of energy management systems in industry and carbon pricing.

12. A majority of companies in the UNECE region have either internal or compliance

driven energy eciency/energy intensity goal. Energy eciency decisions in companies are often made by the same people as core business decisions. At the same time, low priority of energy eciency as it is not part of the core business is one of the main barriers faced by a company when considering investment in industrial energy eciency. e other two signicant barriers are lack or high cost of capital and lack of government incentives. About half of companies have some kind of energy management system (EnMS) but no more than one-fth has EnMS that is ISO 50001 certied. Almost all companies implement some measures or projects to improve energy eciency. Most common measures to improve energy eciency are implemented to enhance energy eciency of buildings and to improve energyquotesdbs_dbs26.pdfusesText_32

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