Long-standing analysis by the IEA indicates that to meet the well below 2°C goal, two-thirds of the EU’s low carbon energy infrastructure investment to 2040 will need to be in energy efficiency1. Yet current levels of investment are quite modest. Just in buildings it estimated that €60-100bn2 needs to be invested annually to achieve Europe’s 2020 energy efficiency targets, with current investments at less than half this level34. The task is significant.
Interpretation of accounting rules is one of the key reasons by the Energy Efficiency Financial Institutions Group (EEFIG) that energy efficiency remains an area of significant under-investment. The EU’s current interpretation of International Financial Reporting Standards (IFRS), recently confirmed by EUROSTAT5, make it difficult for many Member States and their local authorities to develop investment programmes with the private sector. This is because these investments, despite being delivered and financed wholly or in part by private sector partners, require capital budget to cover their cost and as a result are recorded as being on balance sheet and counted towards public sector debt.
The rules are therefore a disincentive to governments to develop energy efficiency investment programmes – and promote the continued focus on grant-funded schemes. This leaves private sector public-private financing options under-exploited and the energy services company (ESCO) as well as Energy Performance Contracting (EPC) market under-developed.