Energy Efficiency for institutional investors

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How to make Energy Efficiency Investments attractive to Institutional Investors

Energy Efficiency for institutional investors
Energy Efficiency for institutional investors

Financing energy efficiency projects can be a challengeif no internal budgets are available and traditional credit financing is not an option. The following article shows how institutional investors can be an integral component to financing energy efficiency projects.

Energy Efficiency Projects: Attractive Investment Opportunity

Energy efficiency projects are attractive investments; shortpay backs allow for appealing returns, risks can partially be mitigated with guaranteed performance from technology providers, returns are not correlated to classical markets, and projects have a clear environmental benefit reducing carbon emissions.

In addition, energy efficiency projects have no exit risk and high cash distributions as projects are fully amortized during the project lifetime.

Barriers for Institutional Investors

Despite these advantages, institutional investors have been reluctant to enter the space, particularly within the industrial sector. There are several reasons for this:

  • Small size of projects
  • Complex contractual setup
  • Variable cash flows
  • No typical bank guarantees

Overall, institutional investors falsely perceive energy efficiency as complex, with prohibitive transaction costs for the scale of projects.

Energy Efficiency Fund as Solution

Using an investment fund as an intermediary between customers, technology provider and investors can remove these barriers and allow for greater participation by institutional investors.

The fund is mandated to mobilize private capital in the energy efficiency space, by directly investing in energy efficiency projects. The projects are focused on tried and tested technologies and are executed and guaranteed by renowned technology partners.

Bundling projects can level out the risk-return profile and decrease the volatility of the portfolio's performance. Furthermore, it increases the investment volume such that it becomes large enough for institutional investors. A fund structure also reduces investment complexity for investors tremendously.

Partnerships Essential for Success

A fund structure is not only interesting for investors, but for industrial customers and technology providers as well. Implementing energy efficiency projects in cooperation with a fund allows companies to pre-define financing and contractual conditions. This enables to scale up projects over large portfolios of manufacturing plants, reducing complexity and transaction costs for all involved parties. Additionally, a partnership allows to structure performance contracts to customer needs (e.g. off balance sheet treatment). A partnership approach allows to reap the full potential of energy efficiency to significantly reduce the energy bill of industrial customers in the immediate term without taking performance risk nor requiring own capital, making energy efficiency an economic and environmental success.

Article written by Patrick Fankhauser, CEO and co-founder of SUSI Partners, Switzerland

Posted on April 12, 2012 - (596 views)
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TIMGlobal Media (formerly Thomas Industrial Media) concentrates upon meeting the need of industrial professionals for up-to-date product information. Since 1975, we have served the European market with industrial publications, websites and e-media.

TIMGlobal Media is a pioneer in providing specialised information for the industrial purchasing process. We serve the whole of Europe with IEN Europe, PCN Europe, Energy Efficiency: business & industry.

Local markets are provided with the following: IEN D-A-CH in Germany; PEI and ECI Electronique Composants & Instrumentation in France; IEN Italia, Il Distributore Industriale, Manutenzione Tecnica e Management, and CMI Costruzione e Manutenzione Impianti in Italy; and Endüstri Dünyasi in Turkey. Our goal is to bring buyers and suppliers together and to be the solution provider for the whole industrial buying process.

We achieve this by creating awareness, supporting the identification of new suppliers, providing up-to-date product and vendor information, and offering measurable benefits to advertisers and users.

Whether your company needs to be promoted locally in Germany, France, Italy, Turkey, or across Europe, TIMGlobal Media offers a custom mix of marketing, advertising and editorial services using a full suite of print, digital and online media.

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