Unlocking the potential of energy efficiency investment

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Investment in energy efficiency still lags behind renewable energy generation, despite the fact that energy efficiency is a 'win-win' for investors, according to Peter Sweatman, chief executive of consulting firm Climate Strategy & Partners.
 
In an article for GreenBiz, Sweatman -- who is also a rapporteur to the Energy Efficiency Financial Institutions Group (EEFIG) -- says that, in most cases, energy efficiency is a "much more reliable" investment than generation, with a much quicker payback period.
 
Between now and 2050, the biggest contribution to reducing global emissions has to come from economy-wide energy savings, Sweatman explains. The International Energy Agency (IEA) estimates that global investment in energy efficiency needs to reach $1tn per year -- a fourfold to fivefold increase from the current level of around $221bn.
 
EEFIG data on thousands of energy efficiency projects across Europe shows that that, for residential investments, the median price to save a unit of energy (3 cents/kWh) was over eight times lower than the average retail price to consume one (24 cents/kWh, based on the latest EUROSTAT averages for EU-28 retail energy prices).
 
For industrial projects, the numbers were an average of just over 1 cent of investment needed to save 1kWh compared with nearly 12 cents to consume one.
 
"This is a huge differential and sees a median payback period of just two years for investments in industrial energy efficiency," Sweatman points out. "This compares to an average payback period of around 10 years for a typical investment in a corporate renewable energy project."
 
To encourage investment in retrofit projects, Sweatman believes that financial institutions need access to better data and analysis which enables them to value and monitor the performance of energy efficiency investments. This would allow them to design and price more appropriate financial instruments for their clients.
 
To date, about 85% of all energy efficiency investment has been financed through existing sources of finance or self-financed, rather than by using specific financial products for energy efficiency.
 
"This will change as financial institutions tailor financial instruments to enable new business models for energy efficiency in buildings and industry," Sweatman says. "We can increase profitable energy efficiency investments fivefold, and with increased ambition from EU Member States and G20, I am confident that we will."
 

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