GoSafe with ESI: Investments for a climate neutral Europe

September 28, 2021

Livia Miethke Morais, Senior Sustainable Energy Finance Specialist at BASE, tells us all about the implementation of GoSafe with ESI to build a climate neutral Europe

Energy Efficiency investments qualify under the EU Taxonomy and contribute with the European Green Deal.

The European Green Deal aims at delivering the EU vision of a climate-neutral continent by 2050 and sets clear targets for emission reductions, renewable energy production and energy efficiency. This will require not only the mobilisation of financial resources from public actors but also and most importantly from the private sector.

What is the EU taxonomy and why do we need one?

In order to meet the EU’s climate and energy targets and reach the objectives of the European Green Deal, the establishment of the EU Taxonomy aims at boosting private sector investment in green and sustainable projects. It is a classification system, for listing environmentally sustainable economic activities, therefore setting clear guidance for more sustainable investments. It is, in essence, an effort to achieve a clear definition of what are sustainable and green investments that can be pursued to support the Green Deal.

A set of seven environmental objectives is listed by the EU Taxonomy and for qualifying investment as environmentally sustainable and aligned with the Green Deal, an activity must contribute substantially to one or more of the environmental objectives at the same time as it does not significantly harm any of the other. Energy efficiency and renewable energies are listed under activities that contribute to climate change mitigation, therefore qualified within the EU Taxonomy.

An innovative model: The Energy Savings Insurance

Nevertheless, investments in energy efficiency, especially by Small and Medium-sized Enterprises (SMEs), face barriers such as high upfront costs, lack of access to finance, high perceived risk, lack of trust in new technologies, competing investment priorities, lack of knowledge and awareness, and split incentives.

Many of these barriers can be overcome, at least in significant part, with well-designed financing mechanisms such as the Energy Savings Insurance (ESI) model. The ESI model helps to build trust in Energy Efficient (EE) solutions by providing a scheme in which companies, especially SMEs, can rely on the returns of their investment in EE, as the future energy savings are guaranteed in contract and covered by insurance. Together with complementary measures such as policies, regulations, awareness-raising activities and behaviour-changing initiatives, financing mechanisms and business models for energy efficiency, such as the ESI model may significantly contribute to delivering the European Green Deal.

The ESI model has been conceptualised by BASE and implemented in Latin America with the Inter-American Development Bank (IDB)[i]. Furthermore, it has been recognised by the Global Innovation Lab for Climate Finance as one of the most promising instruments to mobilise private sector investments in EE.[ii] The ESI model also features in the G20 EE Investment Toolkit[iii] and in the Swiss Sustainable Finance compendium of instruments for Financing the Low-Carbon Economy[iv].

The ESI model combines financial and non-financial elements designed to work together to create trust and credibility among key stakeholders (e.g. technology providers, enterprises, financial institutions), reducing the perceived risk of energy efficiency investments. The main elements are described as follows.

Standardised Contract: offers a clear and transparent framework for negotiations between clients and technology providers (TPs) on how a project’s energy savings are guaranteed. It is based on a turnkey contract added with guaranteed savings clauses and distribution of remaining risks to the other actors.

Insurance: a surety bond insurance, which forms part of the guarantees offered in contract by the technology provider to the client. With a risk coverage product, clients are insured against the provider failing to fulfil its contractual obligations regarding the energy savings.

Technical Validation: conducted by an independent validation entity, which evaluates the capacity of the project to deliver promised energy savings, verifies the installation, and acts as an arbitrator at the savings monitoring stage, if required.

Financing Structure: with facilitated access to existing financial instruments (e.g. credit guarantees or “green lines”) by clients investing in EE projects.

Online platform: allows the smooth and traceable exchange of information, documentation and savings reporting between the diverse actors in the process: clients, TPs and the validation entity. Developed in blockchain, the platform also increases the trust among the actors.

Implementation of ESI Europe: GoSafe with ESI

BASE and partners are implementing the ESI model in Europe (Italy, Spain, and Portugal) with funding support from the European Commission’s Horizon 2020 Research and Innovation Programme. The ESI model is brought to the market under the GoSafe with ESi brand. From September 2021, the ESI Europe 2.0 will be launched with the expansion of the implementation of GoSafe with ESI in Croatia, Greece and Slovakia.

The GoSafe with ESI elements have been developed and pilot projects in Italy, Portugal and Spain are testing the operationalisation the model. The implementation of the ESI Europe included the training on the GoSafe with ESI elements of more than 1,000 individuals ranging from technology providers, SMEs and financial institutions within Italy, Portugal and Spain. In addition, almost 1,000 individuals from a European-wide audience also had the opportunity to learn about ESI Europe and GoSafe with ESI through presentation in events and webinars for dissemination.

The ESI Europe toolkit has been prepared and contains the Business Model Canvas for GoSafe with ESI. It describes the steps for implementing the innovative business model, that goes from an initial market assessment, the engagement of key partners, such as insurance providers, validation entity and financial institutions; capacity building and building a pipeline of initial projects. Templates for the key resources to be adapted to local market, such as the GoSafe with ESI contract, the validation process, energy savings insurance and financing structure as well as marketing material samples are included in the toolkit for the implementation of GoSafe with ESI in new markets.

Innovative business models such as GoSafe with ESI are important drivers of private investments in energy efficiency and renewable energies, aligning with the EU taxonomy and therefore contributing to the delivery of the European Green Deal.

The content within this article reflects only the author’s views, and not the views of the European Commission or the CINEA. The Commission and Agency is not responsible for any use that may be made of the information it contains.

Authors:

Livia Miethke Morais, Senior Sustainable Energy Finance Specialist, BASE (Basel Agency for Sustainable Energies).

Pablo Osés, Senior Business Developer, BASE (Basel Agency for Sustainable Energies).

Reference

Inter-American Development Bank. Latin American and Caribbean Green Financing (n.d.). Energy Savings Insurance Program
Global Innovation Lab for Climate Finance (n.d.). Energy Savings Insurance. The Lab: Driving Sustainable Investment

iii. G20 Energy Efficiency Finance Task Group (2017). G20 Energy Efficiency Investment Toolkit

Swiss Sustainable Finance (2020). Financing the Low Carbon Economy – Instruments, Barriers and Recommendation
https://gosafe-esi.com/

ESI Europe – Driving Investments in Energy Efficiency through Energy Savings in Europe has received funding from the European Union’s HORIZON 2020 Research programme under the Grant Agreement no. 785061.