Eurostat and the EIB launch a new Guide on the Statistical Treatment of EPCs

Eurostat, the Statistical Office of the European Commission, and the European Investment Bank (EIB) launch a new Practitioner’s Guide on the Statistical Treatment of Energy Performance Contracts 

The new Guide follows the Eurostat Guidance note on the revised treatment of Energy Performance Contracts in government accounts, issued in September 2017, and explains its practical application, making use of technical assistance resources from the European Investment Advisory Hub (EIAH). The guide is available here.

Marianne Thyssen, Commissioner responsible for Eurostat, said: “I am very pleased to launch a new guide today that clarifies how investments in energy efficient infrastructure should be statistically treated. This will help all stakeholders involved in commissioning, financing and undertaking energy performance contracts. This is a win-win for public authorities and private stakeholders, with a clear understanding of the impact on the national budget. I am confident this new guide will encourage both private and public project promotors to step up investments in energy efficiency projects.

Commissioner for Energy and Climate Action, Miguel Arias Cañete, added: “Thanks to this guide, it will be easier for schools, hospitals, and other public buildings – which make up more than 10% of the overall EU building stock – to invest for the purpose of improving energy efficiency. Energy efficiency measures are also an important means to combat energy poverty, which this Commission aims at tackling at the roots.

Andrew McDowell, EIB Vice-President with oversight for Energy, said: “Managers of public buildings – such as schools, hospitals and other public agencies – often lack the budget and technical expertise to design and secure finance for energy savings projects that reduce carbon emissions, save taxpayers’ money and make buildings more comfortable for staff and public service users. This new Guide aims to help public authorities to prepare and finance projects, by mobilising private capital and expertise for the benefit of the public sector under Energy Performance Contracts. This is one of many steps that the EIB is taking through our joint “Smart Finance for Smart Buildings” initiative with the European Commission to unlock more energy efficiency investments in public and private buildings.”

The Guide explains in detail how Energy Performance Contracts work and gives a clear overview of the potential impact on government finances. This will help Member States and other stakeholders to better understand the impact that the different features of these contracts have on the classification of the investment undertaken, on or off government balance sheet, and will assist public authorities in taking better-informed decisions when preparing and procuring their EPCs. This Guide is also a helpful tool to provide clarity to public and private promoters in the context of the Investment Plan and remove perceived barriers to investment.

About 97% of EU’s building stock, not considered energy efficient

Roughly 97% of the European Union (EU)’s building stock, amounting to over 30 billion m2, is not considered energy efficient, and 75 to 85% of it will still be in use in 2050.

Defining a pathway towards a ‘highly efficient and decarbonised building stock by 2050’ is a fundamental pillar of the revised Energy Performance of Buildings Directive (EPBD), requiring the transformation of the majority of buildings from highly inefficient to, at least, nearly zero-energy buildings.

This is an opportunity to significantly improve the quality of the building stock and the living conditions of all Europeans. However, to achieve this goal, the multiple barriers building owners face when planning a renovation must be overcome. One of the main barriers to renovation is the lack of knowledge about what measures to implement and in which order. Building renovation is often considered a burden that many associate with time-consuming planning, uncertainty about the value of the planned measures, dust and unreliable professionals.

The iBRoad EU-funded project works on eliminating these barriers by developing an Individual Building Renovation Roadmap for single-family houses. This tool provides a customised renovation plan over a long-term period (10-20 years). The roadmap is at its core a home-improvement plan which considers the occupants’ needs and specific situations (e.g. age, financial situation, composition and expected evolution of the household, etc.) and avoids the risk of ‘locking-out’ future renovation solutions due to a lack of foresight.

The renovation roadmap is combined with a building logbook, a repository where all the building-related information can be stored and continuously updated. The type of information stored in the logbook and its functionalities can evolve over time and could range from energy production and consumption to equipment maintenance, as well as insurance, property plans and obligations, energy bills, smart meter data and links to available financing options for renovation projects (e.g. green loans, incentives, tax credits).

This report offers an overview of the process behind the creation of an Individual Building Renovation Roadmap and covers the key issues that need to be addressed to allow its development and implementation. Real-life examples based on four existing initiatives revolving around the concept of individual building roadmaps and passports are used in this report to demonstrate how the different elements can be designed and implemented: Denmark (BetterHome), Flanders (Woningpas and EPC+), France (Passeport Efficacité Énergétique) and Germany (Individueller Sanierungsfahrplan). These specific cases were chosen for their advanced phase of development; most are entering or have just concluded the testing phase and will soon start implementation. Two of the cases (Germany and Flanders) are driven by (regional) governments, while the others are initiated or driven by private actors (BetterHome in Denmark and Passeport Efficacité Énergétique in France).

 

 

New research finds USD 1.5 trillion in potential cost savings in office buildings

Eindhoven, the Netherlands – Businesses around the world could realize savings of up to USD 1.5 trillion in reduced rental costs alone if their office buildings were refurbished to the most efficient standards of today, according to new analysis1 from Philips Lighting (Euronext: LIGHT), the world leader in lighting. 

The findings, released by Philips Lighting in conjunction with World Green Building Week, show the impact that could be made on rents across the world’s offices if business owners replicated the efficient usage of space achieved in a leading green building. Deloitte accomplished a 50% reduction in space required per employee in The Edge building in Amsterdam compared to its previous premises The Chrystal Tower, through effective use of smart technology2. 

The Edge uses smart technology such as a connected LED lighting system from Philips Lighting that enables employees to personalize their lighting and temperature at their workspaces via a smartphone app, but also provides building managers with real-time insights on how the office is being used to help maximize operational efficiency. These insights are derived by the analysis of data collected by sensors embedded in the lighting.

Philips Lighting is calling for a doubling of the renovation rate of offices in developed countries to reach 3% per year, which it says will be a key factor in reducing emissions and offsetting increased demand for energy from population growth and urbanization. 

Moreover, the research findings highlight that in addition to reducing their carbon footprint, office tenants could see vast financial savings if their buildings were renovated in a way that uses space more effectively, particularly in buildings with a high number of empty workspaces and meeting rooms at any given time. 

But Philips Lighting says the potential rent reduction from optimizing offices is just a small proportion of the total potential financial benefit to businesses, which also includes lower utility bills and significant gains in the productivity of employees, the largest cost to most businesses. 

“Renovating buildings to make them more energy efficient can have a huge beneficial impact on the environment, and when they are renovated properly to encompass smart technology, the additional financial impact for businesses can also be vast,” explained Harry Verhaar, Head of Global Public & Government Affairs at Philips Lighting. 

The JLL 3-30-300 rule of real estate3 shows that a company’s typical costs per square foot per year are USD 3 for utilities, USD 30 for rent and USD 300 for payroll, highlighting that gains in employee productivity are worth far more to a company in financial terms than rent reductions or increases in energy efficiency of the same percentage. 

“Our research looks at the potential savings in rent by optimizing space,” Verhaar continued, “whereas this is just scratching the surface of the financial gains that can be simultaneously made by using smart technology. This can significantly reduce bills for energy, water and air conditioning, and generate even greater financial benefits by improving the productivity of employees through enabling them to do things like find a meeting room faster or adapt the light and temperature conditions at their workstation. We are calling for a doubling of the renovation rate of buildings primarily to help mitigate the harmful effects of climate change, but at the same time take advantage of some considerable commercial benefits to businesses.” 

Regional reductions

Asia Pacific is the largest market for office space, with a total of over 65 billion square feet of office space4. As such, it currently has a potential USD 977 billion of reduced annual rent for commercial tenants if buildings were optimized in line with best practice.  This is more than the total economy of Indonesia5. Europe has a total of USD 243 billion of potential savings, and North America USD 220 billion1.

Notes to editors

1 Philips Lighting analysis, applying the reduced space per employee in The Edge (footnote 2) and the average USD 30 per square foot per person per year rule of thumb from JLL (footnote 3) to Navigant’s dataset on the combined area of office buildings around the world (footnote 4) 

2 Source: Deloitte. In the Chrystal Tower, Deloitte used 15.3 m2 per full time employee. By September 2016 in The Edge, it was utilizing just 7.6 m2 per full time employee, a reduction of over 50%.

3 JLL 3-30-300 rule 

4 Navigant Research Global Building Stock Database 

5 Source: IMF

Eurostat clarifies how to record energy performance contracts in national accounts

Eurostat, the Statistical Office of the European Commission, has published today an updated guidance note on the recording of energy performance contracts (EPCs) in government accounts.

The revised guidance note clarifies the accounting rules applied to the treatment of energy performance contracts. It follows up on the work already undertaken by Eurostat to clarify the accounting rules for various types of public investment, including the Guide to the Statistical Treatment of Public Private Partnerships published last year.

Marianne Thyssen, Commissioner for Employment, Social Affairs, Skills and Labour Mobility, and responsible for Eurostat, said: “Europe needs investments. With this guidance we show how public authorities can invest in full respect of the principles of public accounting, now also in the energy sector. Facilitating investments in energy efficiency measures has also an important social function, as public buildings such as social housing facilities will benefit from it too.

Miguel Arias Cañete, Commissioner for Climate Action and Energy said: “Energy efficiency first: from words to action. Thanks to the revised guidance published today, it will be easier for schools, hospitals, and other public buildings – which make up more than 10% of the overall EU building stock – to invest for the purpose of improving energy efficiency. Energy efficiency measures are also an important means to combat energy poverty, which this Commission aims at tackling at the roots.”

Energy performance contracts in the public sector offer a practical solution to make public buildings and other public infrastructures more energy efficient, as the initial investment can be covered by a private partner and repaid by guaranteed energy savings. However, frequently this type of contract simultaneously contains elements of a rental, service, lease, purchase or loan agreement, making its recording complex. At the request of Member States, Eurostat has worked with National Statistical Institutes (NSIs) to reflect on the most appropriate recording of EPCs in government accounts, resulting in the guidance note published today.

The guidance note is available to download here.

Background

In November 2016 the European Commission put forward the “Clean Energy for All Europeans” package aiming to keep the European Union competitive as the clean energy transition is changing global energy markets. Central elements of this package were ambitious proposals on energy efficiency as our first fuel. Energy efficiency reduces energy bills and the dependency on imports, while creating local jobs. But it also requires significant upfront investment, particularly with regards to the refurbishment of buildings. Energy performance contracts (EPCs) can help the building sector increase the necessary investments in the context of increasing private investor interest and fast developing expertise.

The Eurostat guidance note published today on the accounting treatment of EPCs significantly increases the possibilities for public bodies to use such contracts, by including and clarifying the circumstance in which these contracts can be recorded off government balance sheets. In this way, the updated guidance paper is also in line with the third pillar of the Juncker Plan, which aims at removing regulatory barriers to investment. It also paves the way for the development of a stronger market of EPC providers, involving many SMEs. According to data collected by European PPP Expertise Centre (EPEC), over the last five years 345 new public-private partnership projects concerning energy performance were signed in 16 EU Member States, for the total value of over €65 billion.

The updated guidance note will help Member States’ National Statistical Institutes (NSIs) to better understand the impact energy efficiency investments have on government balance sheets. The note provides guidance to statisticians regarding the interpretation of certain ESA 2010 provisions – the European System of Accounts – in the case of EPCs, more specifically those EPCs which require an initial capital expenditure to improve the energy efficiency of a facility. EPCs where the energy efficiency is obtained through energy management measures, without any investment in equipment addition or renewal, are treated as simple service or maintenance contracts. This revised guidance is applied in cases where the EPC-contractor can be considered as the economic owner of the asset.

Technical assistance facilities like the European Investment Advisory Hub set-up by the European Investment Bank (EIB) and the Commission will use this guidance note to assist in any potential request. The note will be backed up by a Practitioner’s Guide jointly produced by Eurostat and the European PPP Expertise Centre (EPEC) of the EIB, which will be published by the end of the year.

Eurostat is the Directorate-General of the European Commission providing statistical information to the institutions of the European Union (EU) and promoting the harmonisation of statistical methods across its member states. The organisations in the different countries which actively cooperate with Eurostat are summarised under the concept of the European Statistical System.

 

 

Interim report on sustainable finance | European Commission

The High-Level Expert Group on Sustainable Finance, established by the Commission, has published its first report setting out concrete steps to create a financial system that supports sustainable investments. The Commission will explore some key early recommendations to take further steps towards a low carbon, more resource-efficient and sustainable economy.

The report is part of broader efforts to map out an EU strategy on sustainable finance, a priority action of the Capital Markets Union (CMU) Action Plan. The first wave of EU reforms focused on making the financial systemmore stable and resilient. The Commission is now driving forward efforts to reorient the financial system so that it can support long-term, sustainable growth. The financial sector has a vital role to play in reaching the climate change goals of the Paris Agreement and the EU’s 2030 Agenda for sustainable development. It is also vital that more private capital is mobilised towards green and sustainable investment so as to enable the transition to a low-carbon economy.

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union said: “Europe wants to look ahead to the low-carbon future Strengthening the EU’s global leadership on sustainable finance is one of the main priorities of the Juncker’s Commission. I am very pleased with the outstanding work of this high-calibre High-Level Expert Group under the leadership of Christian Thimann. I now look forward to the Group presenting its final recommendations by the end of 2017.”

Jyrki Katainen, Vice-President responsible for Jobs, Growth, Investment and Competitiveness added: “Mobilising finance from investors oriented to the long-term and from capital markets is vital for the transition to a low-carbon, more resource-efficient and sustainable economy. We know that investments of around €180 billion per year are needed to deliver on the EU’s ambitious climate and energy goals. The High-Level Expert Group’s report complements our efforts made in that direction under other parts of the Investment Plan for Europe, notably the European Fund for Strategic Investments.”

Today’s interim report by High-Level Group maps out the challenges and opportunities that the EU faces in developing a sustainable finance policy agenda, identifying possible areas of reform in financial policy. It also presents a first set of early recommendations to the Commission. The expert group will further explore other policy areas to provide further recommendations in the final report, due at the end of 2017.

The areas on which the interim report proposes quick action include a classification system for sustainable assets, a European standard and label for green bonds, fiduciary duty that encompasses sustainability, better disclosure from financial institutions and companies on how sustainability is factored into decision-making and a ‘sustainability test’ for relevant EU financial legislation. The Commission will now start exploring these early recommendations as of now.

 

The High-Level Expert Group will continue examining other policy areas, such as: integrating sustainability considerations in ratings, improved transparency requirements for listed companies, as well as increasing the level of sustainable investments through stable long-term policy frameworks and a strong pipeline of sustainable projects.

The interim report will be discussed at a public hearing on sustainable finance organised by the European Commission on 18 July 2017 in Brussels. It will be accompanied by a public consultation that will help the group to deepen its analysis and shape its policy recommendations.

Background

The European Union has been at the forefront of efforts to build a financial system that supports sustainable growth. In 2015, landmark international agreements were established with the adoption of the UN 2030 Agenda and Sustainable Development Goals and the Paris Climate Agreement. The EU has set itself ambitious climate, environmental and sustainability targets, for instance through its 2030 Energy and Climate framework, the Energy Union and its Circular Economy Action Plan.

These commitments and the growing awareness of the urgency to address environmental challenges and sustainability risks call for an effective EU strategy on sustainable finance.

The High-Level Group was established in December 2016 as part of the Commission’s commitment to the Paris Climate Agreement. It is made of 20 senior experts from civil society, the finance sector, academia and observers from European and international institutions. It’s chaired by Christian Thimann.

The High-Level Expert Group has taken into account relevant work on climate, environmental and sustainable finance, such as the Guidelines on non-financial reporting adopted by the European Commission on 26 June 2017 and the final recommendations report published by the industry-led Task Force on Climate-related Financial Disclosures (TCFD) on 29 June 2017.

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