Non domestic energy efficiency

UK Green Investments

Prior to state aid approval, the Government through the UK Green Investments ("UKGI") paved the way for the establishment of the UK Green Investment Bank and considered investments in the non domestic energy sector (NDEE).

Following the receipt of state aid approval for the creation of the UK Green Investment Bank the interest in the above funds transferred from BIS to GIB on 13 November, 2012.

NDEE Fund Managers Details

If you have a specific NDEE project, which is below £30 million, contact both our appointed fund managers from Equitix and SDCL:

For projects above £30 million, or more general NDEE sector enquiries, please email the lead UKGI team members: Charles Abel-Smith and Malcolm Ball.

Background

In order to meet targets in the 2023-2027 carbon budget, the UK needs to reduce its emissions by 50% below 1990 levels.

Energy efficiency measures reduce the amount of energy required to power heating, lighting or other services. Improving energy efficiency is essential to the UK’s ability to meet its emissions targets under the Climate Change Act. 
 

Investment challenges

Estimates show that there is potential for emissions to be reduced by 10-14 per cent in the business and public sectors. However non domestic energy efficiency (NDEE) projects have been affected by issues which include the following:

• Lack of project deal flow: energy efficiency investment tends not to be the highest priority for non domestic energy users even though the returns from such investment can be relatively attractive. 
• Lack of experience and understanding about the sector resulting in most investors overestimating the risk involved with larger scale NDEE projects, and underestimating the potential benefits. 
• Many organisations wishing to improve their energy efficiency find it difficult to access finance for this. This is largely because banks are unwilling to lend for energy efficiency projects since they do not see energy efficient equipment as having any recoverable value. 
• High cost due of diligence, and lack of the necessary in house capacity needed to better understand the risks and rewards of NDEE projects.

Existing financial support

The Co-operative Bank finances around £100 million of the UK’s National Health Service energy infrastructure projects. The Siemens Financial Services and Carbon Trust partnership provides up to £550 million in energy efficiency loans over three years.

However, these projects do not come close to addressing the finance needs of the sector which is likely to require at least £9 billion investment by 2020 (60 per cent of the estimated £15.5 billion needed).

Existing Policies

Policies that encourage private sector take-up of non-domestic energy efficiency measures include:

• Pricing measures, which improve the financial case for implementing energy efficiency measures either by increasing the cost of energy or by providing financial incentives to offset the cost of more efficient equipment or practices. These include Climate Change Levy, Climate Change Agreements, EU Emissions Trading System, Carbon Reduction Commitment Energy Efficiency Scheme.
• Regulatory measures: the EU Energy Performance of Buildings Directive requires the provision of a building energy efficiency rating of A to G at the point of rental or sale of a building. Various building regulations also set minimum levels of energy performance for new buildings and major refurbishment. In addition the Eco-Design of Energy-Using Products Directive creates minimum standards for appliances, motors, lighting and other equipment.
• Support measures, which facilitate the provision of advice, finance or other support to organisations e.g. the forthcoming Green Deal.

Although these policies have encouraged some organisations to take NDEE measures, they are not achieving the necessary rate of increase to enable the UK to meet its emissions targets. Similarly they do not target the market failures resulting in a lack of finance for NDEE projects.