Access to finance for the local energy transition: how to move away from subsidies

Session Summary:

On 12 October 2023, during the European Week of Regions and Cities, PROSPECT+, the Covenant of Mayors and partners hosted a unique interactive session, "Access to finance for the local energy transition: how to move away from subsidies?”
Georg Houben, representing the European Commission's DG ENER, set the scene by highlighting that the scale of the climate challenge and the resulting legal framework impose many challenges for cities and towns, which are at the frontline of events and motors for change and job creation. Georg stressed that considering the increased ambition under the FitFor55 and achieving climate neutrality by 2050, more than EU, regional and national funding is required, and local authorities need to mobilise private finance.
Sylwia Slomiak from Eurocities gave an overview of the initial findings of consultations Prospect+ is currently running to understand the priorities, needs, challenges and opportunities in adopting alternative financing models at the local level across Europe. The initial findings show that public authorities still need more capacity, advisory support and better national regulations.
Tommaso Buso from Bankers without Boundaries shared practical insights on sustainable investments from an investors’ perspective, providing guidance on effective project implementation. Georg and Tommaso also underlined the added value of initiatives such as the European City Facility and the Smart Cities Marketplace, which bring together financiers with public authorities and provide municipalities with various advisory support to fill capacity gaps and grants for developing investment concepts.
The central part of the session focused on three case studies from Spain, France and Croatia. Angela Rivada talked about investments in transport and building renovations, focusing on Energy Performance Contracting. Laurent Chanussot discussed how energy-efficient public building projects can benefit from dedicated one-stop shops for local authorities. Sanela Mikulčić Šantić provided insight into the tangible impact of renewable energy cooperatives and crowdfunding and how her region managed to successfully overcome barriers resulting from unfavourable national regulations by creating a micro-loans scheme.
The lively roundtable discussions that followed allowed for a deeper understanding and exchange of ideas. They revolved around the challenges and potential solutions to address the still-existing barriers observed by most local authorities, supporting the findings of the Policy Dialogue consultations under Prospect+.
Angela, Laurent and Sanela summarised the common challenges and innovative solutions they identified with the participants: while barriers are widely recognised, there is a need for more tangible metrics and ways to demonstrate them to a broader audience. The groups also observed that smaller municipalities often need more infrastructure and knowledge to tap into available financial resources effectively.
They highlighted the need for a collaborative effort involving both local and national bodies and unifying national regulations across Europe. Participants emphasised that there is a considerable gap between administrative aspirations and on-ground implementation, especially in smaller municipalities. Nevertheless, they saw the potential to overcome challenges of scale and expertise if provided adequate support.
While various financing avenues are available, the participants pointed out that not all are widely understood or accessible in all member states equally. The financial return on investment and market maturity, especially for energy projects, were stressed as crucial factors in increasing private finance use for municipal investments. The group agreed, however, that shifting away from subsidies can be profitable and has societal benefits. For example, crowdfunding and microloans can be a particularly attractive alternative to citizens when banks offer lower interest rates than those municipalities can offer when mobilising financing for community projects.
Closing the sessions, Tommaso Buso highlighted the importance of trust and credibility in energy projects. He underscored the necessity for clear communication between municipalities and investors. He hinted at a need for municipalities to demonstrate better their projects' viability and potential return to attract investments. Additionally, he emphasised the relevance of non-financial barriers, hinting at the importance of socio-cultural factors, public trust, and stakeholder engagement in determining the success of energy projects.
The overarching message from the session was clear: innovative financing is an essential tool for accelerating a sustainable energy transition, and there is a growing momentum in understanding and adopting these models across Europe's regions and cities.
However, local authorities need more support, and the regulatory conditions must be adequately adapted across the EU member states to give all regions equal opportunities to successfully address the climate and energy challenges they face.

KEY TAKAWAYS
- Shared Challenges across Europe: Multiple European countries face similar challenges and capacity gaps, presenting opportunities for collaboration and shared solutions.
- Need for Concrete Recommendations: There is an urgent requirement for clear, actionable steps to overcome barriers at both national and EU levels and to unify the opportunities to attract financing local authorities have in all EU member states.
- Complex Planning Processes: Navigating the intricacies of urban planning is often seen as trying to decipher a "black box", emphasising the need for more streamlined strategies.
- Focus on Building Renovation: Prioritising renovations can improve residents' comfort and yield economic benefits.
- Measurement of Barriers: Identifying and quantifying existing barriers is crucial to ensure a unified understanding and approach to these challenges.
- Financial Challenges and Advantages: Adequate funding and financing options are pivotal for the implementation of energy action plans and understanding the economic benefits of such processes.
- Administrative and Expertise Support: Setting up effective administrative groups and ensuring that all municipalities, irrespective of size, get the necessary support is critical.
- Building Trust: Rebuilding public trust in municipal investments and public-private partnerships is crucial for their success.
- Emphasis on Feedback and Dialogue: Continuous engagement with community members, seeking feedback, and ensuring an open dialogue can pave the way for more successful sustainable development initiatives on the local level.