Municipalities have the option of employing innovative financing mechanisms in order to mobilise the necessary resources for the implementation of their Sustainable Energy and Climate Action Plans (SECAP). This is especially pertinent in communities where access to traditional finance is limited or burdensome. Moreover, innovative financing mechanisms often allow for local ownership, thereby increasing interest in energy efficiency and climate change on the ground. Such initiatives not only help protect the environment but equally raise awareness in the given communities, helping foster the sustainability of measures.
The Covenant of Mayors has developed a publication, summarising a number of success stories and lessons learnt regarding innovative financing schemes from across Europe. The examples listed include: Municipal green bonds, energy taxes, Energy Performance Contracting (EPC), Local Energy Cooperatives (LEC), soft loans, on-tax financing, third party investment and revolving funds. In all cases, the publication highlights that the different instruments can be adapted to the specific local context of the municipality. It also shows that relatively small measures, which do not constitute a substantial burden for individual citizens can make a big difference at city level.
For example, one case introduced in the publication is that of Paris’ green bond system whereby the city of Paris issued a green bond worth 300 million EUR prior to the COP21 in 2015. This initiative proved to be very successful and managed to stimulate investor interest. Two years later, a further green bond was issued worth 320 million EUR. Both were long-term bonds (17 years) at an interest rate of 1.43%. Unexpectedly, diverse domestic and international investors offered the city of Paris a total of 1.2 billion EUR for the bond. The funds raised made it possible for the city to implement numerous climate and energy projects and help it move towards reaching its climate targets.
The H2020-financed E-FIX project obtained similar results, running pilot financing campaigns in 6 countries (Armenia, Austria, Croatia, Czech Republic, Georgia and Poland). Despite the varying local contexts, the campaigns showed that crowdfunding, e-leasing and Energy Supply Contracting (ESC) can mobilise substantial private sector resources for energy efficiency projects. For instance, a photovoltaic plant was installed on a hospital in Zabok, Croatia as part of an ESC pilot. Thanks to this arrangement, the hospital did not have to finance the construction of the solar power plant but entered into a contractual relationship with a private investor who had been selling electricity to the hospital. Not only did this enable the hospital to access “clean” energy, it also resulted in reduced energy costs for the hospital.
Similarly, e-leasing made it possible for an Armenian company to build an energy efficient greenhouse, resulting in annual energy savings of 4GWh. This investment also had a substantial social impact as it bore job creation potential, allowing for the employment of 60 individuals in a rural area of Armenia. Crowdfunding was deemed to have the potential of a similar social impact in the Czech Republic. The Czech pilot foresaw the raising of funds for the reconstruction of the family care house “Centre of Christian Help Krabčice” for people with Alzheimer. The crowdfunding campaign aimed at raising sufficient funds to render the building energy efficient while simultaneously pursuing social goals, thereby killing two birds with one stone.
These are just a few examples of how innovative financing instruments can be applied to benefit both the environment and the citizens of cities. As municipalities work on achieving the targets of their SECAPs and making their cities more environmentally friendly, these instruments will likely gain in popularity as an alternative to traditional financing sources. This is especially important in light of the current pandemic where municipalities and citizens need to work together to undo growing social inequalities and counteract increased disregard for environmental measures.