Large-scale finance of SEA projects is necessary in order to reach Europe’s 2030 energy efficiency and carbon reduction targets. The European Union (EU) must move beyond improved eco-standards for technologies for everything from household appliances to industrial processes and enable market growth of the full range of SEA projects. For example, while buildings are responsible for the largest share of European final energy consumption (40%) and represent enormous potentials for energy savings, current investment to improve their energy performance is too low to meet the energy and climate objectives set by the EU. Indeed, building renovation rates must triple, increasing from 1% a year today to 3% - and investment of an additional €100bn/year is required annually until 2030, cumulatively amounting to over €1 trillion.
Project deployment at scale is not taking place and efforts on the part of governments have not fostered European-wide change. Market forces must be considered, and financial capital must be mobilised at a large scale.
One challenge is the average size and complexity of SEA projects. Over 80% of the necessary renovations and technology upgrades require an investment of less than €500,000, which is far too small to attract either large project developers or investors. Projects therefore must be developed in a manner, which allows them to be aggregated and traded in bundles. Due diligence processing, risk analysis and Developer-End Client contracts must become standardised, in order to lay the groundwork required, to accelerate the development of Sustainable Energy Assets (SEA) into tradable securities.
The SEA project developers’ perspective
Although large companies still spend a lot of time and resources dealing with financial funds (due to the lack of standardisation of processes and documentation), many SMEs project developers in Europe have limited access to adequate financial services. This creates critical barriers to scaling such businesses, and thus to market growth. Small-scale project developers often lack access to growth capital entirely, and at the same time, they must often make debt arrangements with clients in order to secure sales. In some cases, they are forced to turn down contracts with clients or limit their own sales capacities.
The SEA investor’s perspective
The high upfront costs of project evaluation and risk assessment lower the ability of institutional and private investors to invest in small-scale SEA projects (and therefore, effectively, most of the SEA market). These high up-front costs are driven by the fact that almost every element of the due diligence and contracting process is non-standardised, including such items as the SEA Developer-End Client contract, project’s technical and operational details as well as the developer’s and the client’s credit risks.
The LAUNCH project will look to overcome barriers to aggregation and market scaling, laying the foundation for the acceleration of SEA as tradable securities. This will be done through setting up systems to prepare SEA Developers for private equity investment, standardising the Developer-End Client contract, and creating a commonly agreed set of risk assessment protocols.
LAUNCH enables large scale aggregation of sustainable energy assets for financiers and supports contractors in growing their project pipeline. The final objective of the project is to accelerate the acceptance of SEAs as tradable securities. The consortium has wide market reach and access to best in class materials. These will be developed further during the project with a representative group of European investors and tested in real market conditions in cooperation with SEADs and funds. The combination of development with key players and immediate real-life uptake, will ensure the project results are market ready and fully exploitable. The project will provide a basis for accelerated and sustainable SEA market growth and aims to create a European standard for the SEA market going forward.
Specific project aims include:
Starting with existing templates, the SEAD-End client contract will be refined and market tested in cooperation with financial funds and SEADs.
Risk assessment standardisation
Generic risk assessment protocols and existing risk assessment methodologies will be compiled and refined in cooperation with financial funds and SEADs to create a user-friendly, standardised set of protocols to encourage project aggregation across pools of investments. These will be tested in the field during the lifetime of this project.
Growth of SEAs through improving SEADs value propositions
The LAUNCH project will accelerate SEA volume by supporting SEAD sales growth. We will identify SEADs different End-Client segments and teach them how to develop suitable value propositions and corresponding marketing messages.
Standard company presentation templates for private equity investors
The LAUNCH project will work with private equity investors and SEADs to create a set of standardised presentation templates allowing for an accurate and quick assessment of SEAD companies as potential investments by private equity funds.