Report

Teaser, summary, work performed and final results

Periodic Reporting for period 1 - TrustEE (TrustEE – innovative market based Trust for Energy Efficiency investments in industry)

Teaser

The aim of TrustEE is to create a financing method based on a standardised project evaluation platform for energy efficiency (EE) and renewable energy (RE) projects in European industry. Many promising EE and RE industrial projects, in particular those developed by or for...

Summary

The aim of TrustEE is to create a financing method based on a standardised project evaluation platform for energy efficiency (EE) and renewable energy (RE) projects in European industry. Many promising EE and RE industrial projects, in particular those developed by or for small and medium enterprises (SMEs), fail to attract viable financing options. TrustEE addresses financial barriers by providing complimentary services to align the enhanced guarantees and attractive financing options to move projects forward. Example projects may include replacement or augmentation of conventional heating fuels in industrial thermal processes with waste heat recovery, solar thermal, biogas and/or biomass, and heat pumps. In later stages of the project, TrustEE intends to set up a platform model to enable approved project developers/suppliers to develop projects and interact directly with investors to underwrite projects.

Work performed

1. Innovative financing method

For managing credit risk, the customer risk can be assessed by available credit information and can be covered by credit insurance
Terms and conditions of the contract btw supplier and customer will be structured in a framework agreement between TrustEE and supplier. Technical assessment of projects is done in an automated process and verification of compliance of the concrete contract with the framework agreement doesn’t require complex due diligence and structuring efforts. Transaction costs for structuring and assessing projects are reduced to a minimum. Therefore small projects can become eligible to 3rd party financing

Those risk mitigation measures are improving the risk perception of financial investors. Therefore a so-called “securitization vehicle (SV)” acquiring from the supplier the receivables resulting from the repayment plan as a true sale transaction (enabling the supplier thereby to recover the working capital exposure to the project) will be able to securitize the acquired receivables into bonds or credit notes offered to financial investors

The Platform will take over arranging and servicing functions for the proposed financing structure, which can be characterized as “Green Asset Backed Securities Scheme”:
• Registration of suppliers upon verification of the technical and economical qualification of suppliers, their products or services
• Framework agreement with each individual supplier specifying the terms and conditions for receivables to ensure structural and legal aspects required for a potential securitization
• Web-based Platform for analyzing the technical feasibility and financial viability
• Verification of the eligibility of proposed projects for forfaiting upon application by the supplier and confirmation of the fulfillment of the agreed terms and conditions

The securitization vehicle (SV) is not requiring a concession as an AIFM, but a securitization vehicle focusing on purchasing and securitizing receivables.

2. Development of TrustEE platform
The developed a web-based platform were project proposals are semi-automatically assessed (technical and investment).
For technical assessment of the project proposal, yield calculation models were defined for the technologies. The models were implemented in a simulation framework and enable an assessment of annual yield, thus delivering a system yield estimation used to cross-check the yield forecast presented by the proposal.
For investment assessment, a Discounted Cash-Flows model was defined and implemented in a simulation framework. Upon estimated yield results derived from the corresponding technical assessment model and definition of Investment (CAPEX, OPEX, lifetime, discount rate) and macroeconomic parameters (inflation, energy costs), the investment assessment model enables calculation of discounted payback and critical LCOH upon a target IRR (or vice-versa), thus enabling a critical IRR expectation (investor driven) or LCOH requirement (end-user driven) approach.

3. Implementing TrustEE’s risk mitigation and risk managed approach

4. Gathering a portfolio of investments
TrustEE seeks a strong engagement of investors, technology supplies and end-users. The engagement of suppliers was pursued through direct contacts and through conferences, workshops, etc. More than 40 technology suppliers and project developers across Europe were contacted and invited to become a member of the “TrustEE Supplier Pool”. More than 50 banks, financial investors, insurance companies, etc. were contacted. At the Alpbacher Financial Symposium in October ’17 more than 300 industrial companies, Banks and the EIF were present. At the TrustEE workshop, TrustEE partners presented a beta version of the Platform and the SV.

5. Promoting market penetration of EE and RE technologies in industry

Final results

Until now no stanardised method for the technical and economic evaluation of EE and RE projects is available. Furthermore the transaction costs of these projects are very high. The TrustEE platform embodies a 3-stage semi-automated technical-economic assessment of investment proposals submitted online and stores securely all the information on a secure database, to be accessed by the management team.
As a whole, the TrustEE platform is TrustEE’s tool to minimize transaction cost for the assessment of projects to be financed by the proposed securitization scheme. Its ability to assess also small projects at low cost is critical for being able to set up a securitization scheme, because big numbers of projects are needed for the required granularity of the portfolio of securitized receivables.

The financing method is a truly innovative market based third-party financing scheme, but uses financing techniques well established in the financial markets (securitization, asset finance, sales leasing). The consortium proposed not to start with the creation of a regulated fund providing equity, mezzanine and debt financing, but to establish a SV in Luxemburg, which is forfaiting receivables from contracting agreements between suppliers and end-users, and does not require an AIFM registration or licence, thereby creating a “Green Asset Backed Securities” scheme.

Impact of TrustEE:

- Enabling policy
Policies and strategies will be created/adapted to include sustainable energy issues at all governance levels. In project phase 1 action to promote the innovative financing solutions via the SV were done. In total project partners participated in 19 conferences and workshops where TrustEE was presented. Publications in English and German magazines were done; e-newsletters were developed announcing news and results and were distributed via individual partner channels and through the eceee network.

- Preparing the ground for investments
Reaching 10 Mio€ investment is still the objective until the end of the project.

- Building capacities and skills
The project partners of TrustEE attended 19 conferences and/or workshops on national and international level. 100 attendees assumed in average. In the Alpbacher Financial Symposium approx 400 persons participated. Furthermore TrustEE was presented at the Energy Efficiency Finance Market Place in Brussels (350 participants from the financial sector, energy service companies, project developers, public authorities). eceee and BORG&CO hosted an Industrial Summer Study in 2017 and will hold another Summer Study in 2018. Further conferences/workshops will be attended to reach and engage further market stakeholders.

Website & more info

More info: http://www.trust-ee.eu.