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Financial Crisis and Energy Efficiency - IEA /EED

Part II: Challenges

Evaluation

Having considered the main trends relating to energy efficiency coming out of the stimulus packages, this next section considers the remaining gaps and areas for further work. An issue for consideration is the adequate allocation of resources towards evaluation. Based on experiences from several countries, IEA considers that around 3 to 5% of programme cost should be spent on programme evaluation.

Although most of the programmes in recovery packages include strict reporting and evaluation requirements (i.e. see box on US disbursement), it is less clear whether the evaluation effort is being adequately funded.

Timing & administration

One of the main challenges facing energy efficiency institutions in the face of the huge energy efficiency funding boost is the requirement to upscale quickly. This presents several challenges including the need to recruit and train staff as well as to establish or expand systems for programme rollout. All of these take time — which is in short supply. For example, UNEP estimated (April 2009) that "it could take up to six months for the money to flow down from governments to companies and projects". For renewable energy at least, UNEP reports that "the Obama stimulus funds have not yet started to flow" (April 2009).

To address this issue the US has established the Management and Oversight Program Direction set up by the ARRA to supervise the attribution, disbursement and reporting of subsidized energy efficiency projects. Its USD 16 million budget is commensurate with the scope of its task. Another example is provided by the EIB: in May-June 2009, the Bank set up a recruiting campaign to hire a number of energy efficiency experts, both at the project financing and technical evaluation levels.

Regarding time another challenge arises from the uncertainty regarding the sustainability of the money being committed to these programmes. Although this increase in funds is welcomed by managers and project developers, there is still a certain wariness surrounding the duration of this extended finance. For CAP-EFC, "results of these [ARRA-related] efforts are already being seen on the ground today (August 2009)". However, CAP-EFC states "unless private capital markets begin to take over when direct public funding ends within two years, then these emerging businesses will quickly run into trouble".

The main challenge thus is to ensure that local programmes and supporting businesses flourish and grow beyond the period of economic stimulus.

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Box 3: Administrative challenge and disbursement of funds in the US

Disbursement procedures

The US Department of Energy (DOE) has set up a website devoted to the energy-related part of the overall stimulus package, where a list of funding opportunities for energy projects is provided.

The list of applicable EE projects is thus defined by the DOE, with private actors, state or local governments applying directly for any of the grants offered. These applications are then screened for approval by the DOE.

This process leads to define four stages for ARRA funds to be put into actual use:

Authorization: this first step was handled by the Congress when designing the ARRA. It specifies that USD 16.7 billion of the total stimulus package should support EE efforts.

Appropriation: this is the step conducted by the DOE when designing the applicable grants. These grants consist in broadly outlined categories that may be applicable to a number of projects. Examples include “Training Program Development for

Commercial Building Equipment Technicians, Building Operators, and Energy Commissioning Agents/Auditors”, “Energy-Efficient Information and Communication

Technology” or the “Weatherization Assistance Program”.

Award: this step occurs when a project is allowed to benefit from a grant, and is also DOE’s responsibility. As of August 2009, USD 4 billion out of the USD 16.8 billion in authorized spending has been awarded.

Disbursement: this is the final step when the grant money is actually spent on the EE project. As of August 2009, only USD 118 million has been disbursed.

While authorized spending amount is of unprecedented magnitude, an assessment of the actual spent funds after six months into the ARRA reveals a quite different picture. The ARRA was designed to provide a short term stimulus on the US economy, and, therefore, includes legal provisions to ensure that the authorized funds get disbursed before a specific date.

Even though, this ending date varies among ARRA programs, no energy efficiency stimulus spending will be available after 2011. It may thus prove to be difficult to disburse all of the authorized funds within such a short time frame.

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Some analysts fear that recovery programmes aimed to energy efficiency might be one-off, unsustainable initiatives. In discussions conducted by the IEA with country officials, concern was expressed that States receiving significant amounts of money in only one instance might be tempted to use the funds in infrastructure works rather than on sustainable projects. Fear of a windfall effect was also raised.

Interviewees of an IEA study analysis and CAP-EFC concur on the fact that the tight deadline to use ARRA funding is not compatible with encouraging sustainable projects. CAP-EFC suggests that private investments replace public investments once the deadline for investing ARRA money has passed. For this to happen, CAP-EFC explains, a national energy efficiency market must be established (tell me whether you need their list of current barriers and constraints for such a market and how CAP-EFC suggests these can be lifted). As such, CAP-EFC considers that the ARRA should not be an end in itself, but rather considered as a “historic opportunity to ensure that investments made in weatherization and energy efficiency as part of the recently passed ARRA evolve into a sustainable clean-energy retrofit program and a linchpin of the American economy for years to come”.

Impact & evolution of public actors

Box 4: The EIB

EIB

The European Investment Bank (EIB) has seen its role and funding extended following the financial crisis. With its “Action Plan for EU energy policy 2007-2009”, the EIB had already increased its focus on EE before the crisis. The Bank notably pledged to finance up to 75% of EE investments resulting in 20% energy savings.

The increase in overall EIB funds has shown in the amount of funding devoted to energy related projects: the Bank has beaten its EUR 6.5 billion (USD 9.49 billion) target for 2008, ending the year up with EUR 10.2 billion (USD 14.9 billion) of energy-related projects financed. Its 2009 target is now set on EUR 12 billion (USD 17.53 billion). A large proportion of these energy investments directly aims at improving EE (EEs investments have averaged 8% if the overall EIB lending over the past few years).

A recent example of EIB action in favour of energy efficiency is the EUR 250 million loan to Fortum Corp., to finance the construction of two cogeneration plants located in Finland and Poland, as well as the implementation of digital remote metering infrastructure in Sweden.

Public actors affected by the financial crisis include local governments. In many countries, local governments have a role in energy efficiency expenditures. One surveyed expert reported that “the main impact [of the crisis] to date [had] been on local government resources which have reduced significantly as a result of tightening of public expenditure”. For a programme

(WarmZones) relying on local government’s participation (“In most cases [Warm Zones] require a financial contribution from the local authority to make a zone viable”). The expert further reported that “it [was] more difficult to secure these contributions in the current climate”.

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Financial Crisis and Energy Efficiency - IEA /EED

Conclusion

Overall:

Numbers from stimulus packages show a net increase in public energy efficiency investments.

Weatherization programmes receive the greatest share of EE funding, and more generally

‘tried and true’ EE programmes are more funded than new initiatives.

Stimulus money spent on energy efficiency creates jobs.

The transport sector is another focus of stimulus spending.

Finally, tax exemption is also a common instrument used to incentivise people towards ‘Green behaviours’.

Although the increase in energy efficiency funding is encouraging, it has been met with a number of concerns notably:

An issue concerning the allocation of such levels of money in a constrained time frame (i.e. for instance the case of the US where money allocated to EE by public institutions has increased fivefold in less than 2 years); there is a concern that such time constraints could unduly pressure administrations and rush them into taking decisions ending up as being ineffective or inappropriate;

This time constraint is also combined with a great uncertainty concerning the sustainability of these investment streams. As such, there is a concern that some longterm project developer might decide not to ask for the money because they are afraid that this money will run dry up after one year;

Proper allocation of capital and resources on programmes towards evaluation is also crucial. The IEA recommendations emphasise the importance of evaluation and compliance for any successful programme implementation. To this day not enough money from stimulus packages is being allocated to evaluation.

Not enough data is currently available to determine whether this increased public spending has met with a similar increase in private investments. Data evolution of private investments should be monitored more systematically and closely by the IEA.

It remains to be seen whether this sudden push in energy efficiency financing is sustained in the medium to longer term. The IEA believes that the time for action in energy efficiency financing is now. It commends governments for having placed energy efficiency at the center piece of most of their stimulus packages, and urge them to sustain this effort through time. To this day, too little money is being allocated to capacity building, training, institutional expert establishment to gauge of the potential long-term success of these new projects.

For questions or comments, contact

Philippine de T’Serclaes philippine.detserclaes@iea.org +33(0)1 40 57 65 24

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REFERENCES

25x’25 National Steering Committee (15 December 2008), Recommendations for Economic Recovery and a Clean Energy Figure, 25x’25 National Steering Committee

Alliance to Save Energy (29 July 2009), Federal Funds for Energy Efficiency Set to Rise, Alliance to Save Energy, http://ase.org/content/news/detail/5983, (9 September 2009)

American Council for an Energy-Efficient Economy (May 2009), Transportation Energy Efficiency Funding Opportunities in the 2009 American Recovery and Reinvestment Act (ARRA), American Council for an Energy-Efficient Economy, http://www.aceee.org/energy/national/transstimulusprograms.pdf, (9 September 2009)

Conseil Français de l’Energie (2009), Conséquences de la crise sur le secteur de l’énergie, Conseil

Français de l’Energie

Fritz-Morgenthal S., Greenwood C., Menzel C., Mironjuk M., Sonntag-O’Brien V. (April 2009), The global financial crisis and its impact on renewable energy finance, The United Nations Environment Programme

Helmholtz Association of German Research Centres (5 February 2009), Economic stimulus package I: Helmholtz investments approved, Helmholtz Association of German Research Centres, http://www.helmholtz.de/en/news/press_and_news/artikel/detail/economic_stimulus_package_ i_helmholtz_investments_approved/, (9 September 2009)

Hendricks B., Goldstein B., Detchon R. and Shickman K. (August 2009), Rebuilding America: A National Policy Framework for Investment in Energy Efficiency Retrofit, Center for American Progress and Energy Future Coalition

Kanter J. (16 June 2009), GreenInc: Stimulus Packages a Boon for Efficiency, The New York Times

Morsella de T. (20 March 2009, updated 1 June 2009), Which Country Has the Greenest Stimulus Package?, The Green Economy Post http://greeneconomypost.com/country-greenest-stimulus-package-674.htm, (9 September 2009)

New Energy Finance (2009)

Ritch E. (13 February 2009), Germany, U.S., Australia inject stimulus spending into CleanTech, The CleanTech Group

http://cleantech.com/news/4172/germany-us-australia-inject-stimulus, (9 September 2009)

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Annex: details of the American Recovery and Reinvestment Act &Energy Improvement and Extension Act

The figures above only include the core EE projects. Should one include Transportation and Infrastructure investments that can relate to EE (notably the $16.2 billion investment in public transit and rail), R&D that can benefit EE, and other EE-related planned spending (notably the $3.9 billion DoD facility modernization, or the $8.8 billion State Fiscal Stabilization Fund), the $16.7 billion figure specified above then adds up to $70 billion or 9% of the total ARRA.

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