The SUSI Energy Efficiency Fund (SEEF) has agreed to inject up to €30 million ($32.2 million) to refinance energy efficient lighting retrofits via an innovative facility.
The projects to be refinanced are developed by Irish energy services company UrbanVolt, which retrofits commercial buildings with energy efficient light emitting diodes (LEDs) at no upfront cost to its customers, with UrbanVolt claiming a share of the energy savings.
SEEF, which was launched in early 2014, is the largest independent investment vehicle financing energy efficiency projects across Europe, claims Switzerland based investment advisor SUSI Partners.
The €30 million Energy Efficiency Project Facility (EEPF), which was set up as a securitisation vehicle and is owned by SEEF, was implemented by SUSI in a non-recourse-to-borrower financing framework. It has been set up to buy the receivables from projects - the reductions in the energy bills of the end-customers.
The deal represented the first time institutional capital of this magnitude has been put through a dedicated funding facility to finance small-scale energy efficiency projects in small to medium sized enterprises, according to SUSI Partners.
The deal was also unique because of the way it was structured, bundling a number of small-scale projects that have been standardised in order for institutional investors to finance them, Sebastian Carneiro, director of SUSI Energy Efficiency AG, a subsidiary of Swiss investment advisor SUSI Partners AG and the advisor to SEEF, told Environmental Finance.
The EEPF sets out the commercial and legal conditions under which SEEF agrees to refinance the energy efficiency projects, including that projects must be fully installed. Before this point, UrbanVolt pre-finances the work through its own equity.
"This is the blueprint for SEEF for further investing in the energy efficiency space"
- Paul Kearney, SUSI
Because no separate financing agreement – such as a lease or a bank loan, for example – has to be signed by the customer, the SUSI deal is more convenient for the end customer and easily scalable for UrbanVolt, explains Carneiro.
The EEPF is structured so that there is no minimum project size nor is there a requirement for a company to have a track record. An overall credit rating of investment grade, of a minimum BBB-, is ensured, which is appealing to the fund's institutional investors.
To offset the perceived high credit risk of investing in a small company like UrbanVolt, SUSI worked with HSB Engineering Insurance, part of Munich Re Group. HSB will insure each of the LED installations, removing the technology risk for both UrbanVolt and SEEF.
This helped achieve its BBB- rating as well as satisfy SUSI's investment guidelines, and thus the fund's "rather conservative" base of institutional investors, Carneiro explained.
In addition, SUSI used an external credit rating provider, rather than doing an in-house check, so the Swiss company knows in advance
of financing a project whether it is eligible to be supported by SEEF.
"This is a blueprint for SEEF for further investing in the energy efficiency space," Kearney says. "We are working on a number of transactions in several European countries that will follow the same format with just some local customisation. Lighting, heating and rooftop solar are a few such technologies that will follow a similar format."
"It is this type of solution that will fund a large share of the future energy efficiency market which, to date, has been neglected," says Paul Kearney, associate vice president at SUSI and transaction manager for the UrbanVolt deal.
The facility, which is ongoing, will last for more than two years. This means UrbanVolt can continue to develop new projects, and as they are completed SEEF will buy the receivables from the projects. To date, more than 100 projects have been completed by UrbanVolt and refinanced by SEEF.
Financing over a multi-year period gives UrbanVolt long-term security of funding, which allows it to focus on sourcing projects, adds Kearney.
"With the purchase price of those receivables, UrbanVolt refinances itself and frees up its equity, and can invest this money again into new projects," said Carneiro.
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