Energy efficiency strategy, standards and investment

Explanation

Energy efficiency financing   

Recognising that energy intensity remains high in a number of its countries of operation, the EBRD highlights the potential and need to upscale its investments in energy efficiency. “Enhancing energy efficiency” is a cross-cutting thematic area in its Green Economy Transition (GET) 2.1 approach and a priority area in the Energy Sector Strategy (ESS) 2024–2028. The ESS frames energy efficiency as a means to reduce final energy consumption by about 30% globally, though it is unclear to what extent this is adopted as an EBRD target – this should be further clarified. Moreover, the EBRD’s strategy documentation does not explicitly refer to the energy efficiency first principle, which is a missed opportunity. 

The EBRD is among the first PDBs to have developed dedicated credit lines for energy efficiency, including through the Sustainable Energy Financing Facilities and the Green Economy Financing Facilities. Energy efficiency accounted for 29% of GET activities over 2016–2019, the single largest sectoral share of investments. Included among energy efficiency activities eligible for a GET finance label are:

• “Brownfield” projects in which old technologies or equipment are replaced well before the end of their lifetimes with new technologies that are substantially more efficient. Moreover, the new technologies used must be consistent with best practice in industry (EU Best Available Technology or other internationally recognised standards).
• “Greenfield” projects in which new technologies or processes must enable substantially higher systems efficiency compared with those normally used in greenfield projects.

Buildings

Green Buildings is a priority area in GET 2.1. To cut down on emissions from buildings, the EBRD identifies the following investment areas: (i) low-carbon and Near Zero Energy Buildings (NZEB); (ii) deep energy efficiency renovation; (iii) low‐carbon materials; and (iv) low‐carbon energy supply. This is reiterated in the ESS 2024–2028, where the EBRD outlines the need for rapid investments to improve energy efficiency across all sectors including buildings.

GET qualification varies for buildings projects inside and outside the EU. Inside the EU, projects are eligible for a full GET finance label if they achieve high ratings in established building performance certification standards, such as BREEAM “very good”, LEED “gold”, EDGE “standard”, or equivalents. Failing this, to be eligible, the energy performance of new buildings projects should be at least 10% better than national NZEB standards and existing building retrofitting should reduce energy demand by at least 30% compared to baseline performance. Projects outside the EU are eligible for a full GET finance label if they achieve BREEAM “good”, LEED “silver”, EDGE “standard” or equivalent performance standards. Failing this, the energy performance of new buildings projects should be at least one Energy Performance Class (EPC), as defined by national regulations (i.e. EU’s Energy Performance of Buildings Directive), above national requirements. In countries without EPC regulations, an equivalent performance improvement should be achieved. For existing buildings projects to be eligible for the full GET label, energy demand should be reduced by at least 30%.

While the safeguards provided by these criteria are a step in the right direction, they do not provide minimum efficiency standards for all buildings investments as is implemented by other MDBs such as the European Investment Bank (EIB).[1] This leaves potential scope for the EBRD to finance buildings projects that do not meet minimum requirements in certain circumstances.

Transport

Decarbonisation of transport is established as a clear priority in the Transport Sector Strategy (TSS) 2019–2024. The EBRD links this priority to the need to “support reduced travel/need to travel to reduce emissions by bringing transport systems closer to centres of economic activity”. Further information is available in the Municipal and Environmental Infrastructure Strategy, which lists the EBRD’s urban transport goals: increasing walking, cycling and public transport usage, traffic reduction measures, increasing energy efficiency of urban transport systems and the switch to clean-energy-powered urban public transport.

Beyond urban transport systems, the TSS 2019–2024 commits to “scale up investment in less polluting modes, for example, railways, inland waterways, intermodal and logistics to encourage modal shift”. Measures include support for investments in expansion and electrification of railway tracks, rolling stock renewal and fleet expansion, port infrastructure and equipment, inland waterways and ports development, sustainable charging regimes, and fuel switching. Through the TSS, the EBRD further commits to promoting energy efficient technologies and designs, digitalisation, energy management systems, and fleet scrappage and replacement. While these commitments are positive developments, the EBRD would gain from a clear plan to operationalise the “Avoid–Shift–Improve” principle, with targets, indicators and a monitoring framework. 

Projects relating to zero-direct-emissions fleets and related infrastructure are 100% GET eligible. Transport projects with direct emissions need to meet both minimum performance requirements and minimum emissions standards to be eligible. The minimum performance requirements dictate that a project must achieve at least 15% GHG savings compared with the baseline “no project” scenario. The minimum emissions standard is set at <50 g/km CO₂ for light-duty vehicles, heavy-duty vehicles and rail (no standard is set for maritime transport). Some further leeway is granted to projects in non-EU economies, which only need to meet one of the two requirements for GET eligibility.

Financial intermediaries

The EBRD requires financial intermediaries (FIs) to follow “best practices in sustainability management” throughout their lending and investment operations, including in energy and resource efficiency. Nonetheless, this has seemingly not translated into explicit standards for FI financing. Unless “best practices in sustainability management” is more clearly defined or anchored in concrete standards to ensure effective implementation, this remains a vague requirement. Clear, measurable guidelines are essential to translate these practices into actionable and accountable steps.

However, the EBRD has developed instruments to increase energy efficiency finance among its partner FIs. In 2015, the EBRD and UNEP FI organised an Energy Efficiency Finance Forum, bringing together over 60 local financial institutions to share knowledge and best practices. The Sustainable Energy Financing Facilities further support local banks in developing their energy efficiency financing activities through the provision of long-term funding and technical assistance. Furthermore, under the Green Economy Financing Facility (GEFF), the EBRD offers credit lines with specific eligibility criteria to financial institutions, and technical assistance to help them identify high-performance technologies. The Green Technology Selector tool lists pre-approved green technologies eligible for GEFF financing. These technologies must improve performance by at least 20% compared to typical replacements.

Recommendations: 

• The EBRD would benefit from adopting a systematic approach of considering energy efficiency as a first option to optimise energy supply and expand reach across contexts. Such an approach has the potential to support both mitigation and resilience efforts in the context of the energy transition. To operationalise this, the EBRD should explicitly commit to and adopt an “energy efficiency first principle” across its operations. This should be accompanied by a clear strategy for its operationalisation, with systematic procedures, target, indicators and a monitoring framework, to include universal minimum efficiency standards for all buildings projects.
• The EBRD should consider adopting explicit standards for financial intermediary energy efficiency financing. It could consider applying the best practice approach of the EIB, which applies the same criteria to intermediated finance as to direct operations.

[1] The EIB primarily considers projects that are aligned with the EU’s Energy Performance of Buildings Directive (EPBD). Outside the EU, projects that adopt best practice internationally recognised certification schemes (e.g. IFC’s EDGE standard) are supported.