Page 42 - European Energy Innovation magazine - autumn 2022 edition

Summer 2022 European Energy Innovation
42 COMMUNICATION

Innovative financing for

building renovations using

Pay-for-Performance

By Filippos Anagnostopoulos, Mara Oprea and Ivana Rogulj from the Institute for European Energy
and Climate Policy (IEECP), and Johan Coolen from Factor4

n the context of REPowerEU buildings as an energy resource and/ projects become ‘bankable’ through
and the renewed Energy or grid service. It examines how aggregation due to (i) the de-risking
Efficiency targets, it is important aggregating individual renovation of investments through guarantees of
Ito acknowledge the role of projects (financed through Energy financial payback of EE measures for
buildings, which currently account Performance Contracting agreements) investors or public subsidy providers
for about 40% of Europe’s final towards a portfolio of buildings at the programme level and (ii) the
energy consumption. This demand can offer their cumulative demand generation of income from providing
can be significantly reduced by reduction as a service to the grid. benefits to the power system thereby
implementing energy efficiency (EE) This is based on the Pay-for- improving the business case of
measures coupled with renewables Performance (P4P) approach, where energy retrofits in buildings.
such as PV panels in buildings and indirect beneficiaries of renovation
automation systems that respond to measures (e.g. TSOs) distribute The SENSEI project has therefore
the needs of the power grid. Despite payments to Aggregators of renovation developed a model based on Pay-
the multiple benefits related to these projects, based on the measured for-Performance (P4P) depicting
measures, renovation rates remain reductions or shifts of energy demand how renovation projects can be
low due to the difficulty of attracting at the grid level. This measurement aggregated to attract interest from
investments. of energy savings happens with financial institutions that wish to
advanced Monitoring & Verification invest in large scale projects. A P4P
Benefits for the Power System (M&V) algorithms of tools sometimes programme could be found in many
Operators referred to as M&V 2.0 such as configurations, but in essence is a
Large scale renovation programmes CALTRACK, IPMVP, or EENSIGHT. The multi-actor arrangement in which
generate multiple benefits, including use of M&V 2.0 creates numerous financial compensation is rewarded
avoided capacity increase costs possibilities in the field including the based on metered energy savings.
for Power System Operators and accurate monitoring of energy savings
the achievement of energy and from public renovation programmes, Detailed explanation of the P4P
carbon emission reduction goals for the automated reporting of savings programme and financing model
public authorities. Power System from Energy Efficiency Obligations, proposed by the SENSEI project
Operators and governments can or the ability to set up contracts and The basic European P4P model
reap systemic benefits by further financial products linked to achieved suggested by the SENSEI project,
supporting building renovations. energy efficiency and flexibility covers the main actors involved,
The resulting policies and measures services. including Aggregators, ESCOs,
further increase the bankability and Economic Agents, the Public
attractiveness of energy efficiency Financing for renovation projects Authority, the System Operator, the
and flexibility investments for third The opportunities offered by M&V Fund and the Private Third Party
party investors. 2.0 and P4P programmes feature as Investors. The configuration of actors
a potential improvement of current foresees Aggregators at the center
Using Pay-for-Performance to practices in the EU, where most of the model, coordinating the
capture system benefits commercial energy retrofits are realization of renovation projects,
To help the market take advantage financed through credit financing, for which they receive an agreed
of this approach for the purpose leasing financing, project financing, remuneration (e.g. EUR/kWh or EUR/
of reducing building’s energy cession and/or forfaiting on a tCO ) from the Public Authority.
2
consumption and securing the project-by-project basis. Innovative
stability of the power grid, the EU- energy efficiency contracting and The value flows as such: Aggregators
funded SENSEI project explores financing options such as P4P may receive public funds (A) following
how to reward energy efficiency in find fertile soil as more EE finance a competitive procurement and

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