The first PROSPECT+ Policy Dialogue webinar offered a thought-provoking discussion on the evolution of municipal financing and the crucial transition from dependence on public funding to using innovative financing instruments.
The initial findings from the PROSPECT+ Policy Dialogue survey indicate the challenges and perspectives regarding European public authorities’ use of innovative financing instruments. Indicated barriers include unsuitable national regulations, lack of capacity among city staff, and underdeveloped markets, which differ across member states. Public authorities believe the local level needs more support through financial advisory services, peer learning and national-EU cooperation.
For example, a significant majority of representatives of public authorities (96.7%) identified a need for increased capacity (knowledge and time) to start using innovative financing options. 63.3% expressed the need for more advisory support, and 53.3% highlighted the underdevelopment of the market in terms of finding appropriate private partners.
During the main discussion panel, Vlasta Krmelj, Mayor of Selnica ob Dravi and CEO of ENERGAP (Slovenia), highlighted the suboptimal pace of national governments in adapting to the needs on the local level, emphasising the importance of collaboration between energy and finance ministries to develop clear guidelines for local authorities. Vlasta highlighted the critical role of national and regional authorities in creating frameworks for investment, including tax-related aspects. She observed that national authorities must fully utilise the tools, models, methods, and support developed by the European Commission. As a political representative with a seat on the Committee of the Regions, and a mentor on many peer-learning programmes, Vlasta is committed to advocating for action at this level. She saw potential in crowdfunding and green bonds, particularly in rapidly evolving energy and renewable energy communities. She noted a growing enthusiasm among people to proactively invest in these areas, where adequate support and clarity from authorities could significantly accelerate their development. Vlasta expressed confidence that people are eager to actively participate and contribute financially to climate-related activities, driven by a collective desire to make a positive.
Alicia Villazan Cabero from the Valladolid City Council (Spain) emphasised the value of inter-city learning and the importance of a common legal framework in the European Union. She highlighted the value of knowledge sharing and learning, stressing that connecting with other cities, especially within the European Union, is beneficial due to the shared legal and regulatory context. These online and in-person interactions foster solid connections and enable the exchange of valuable information and experiences. Alicia also touched on the advantages of using opportunities for direct, one-on-one contact with technicians from other municipalities facilitated by projects like PROSPECT+. Such relationships can lead to the formation of consortiums for joint projects, increasing the chances to receive grants. Alicia encouraged the continued pursuit of learning and utilising the array of programmes and opportunities available for urban development, emphasising the collective capability to drive progress and change in cities. She advocated for the continuation of such networks and informal, off-the-record conversations, which create a trustworthy environment for sharing experiences.
Andrzej Łazęcki, Director of the Municipal Economy and Climate Department at the City of Kraków (Poland), noted the reliance on EU and national subsidies in Poland, which leads to cities’ limited experience with innovative financing models. Andrzej emphasised the importance of national-level support and guidelines and highlighted Krakow’s adoption of diverse financing methods, including strategies like low-interest loans and Public-Private Partnerships (PPPs). He discussed the Energy Service Company (ESCO) model’s application in Krakow and identified two key barriers: the poor technical condition of many buildings requiring substantial investment and ESCOs’ preference for renewable energy systems installations rather than complex building renovations. Andrzej introduced the NEEST pilot project, which encompasses renovating entire urban quarters and includes renewables, electromobility, stormwater management, and greenery, emphasising the social impact on residents. To encourage innovation and novel financial schemes, he advocated for managing renovation processes and financing by external entities rather than building owners or managers. Krakow plans to develop a public handbook for transitioning to net zero, create solutions for building quarters, and collaborate with national agencies on energy system models. The overarching goal is to formulate recommendations for government incentives and support systems.
Jolein Schorel, representing the Municipality of Amersfoort (the Netherlands), shared the practical challenges faced at the local level to underscore the need for clarity and support at national and European levels. She spoke about the legal barriers in consumer credit regulations hindering energy-efficient home renovations using Energy Performance Contracting. To address the challenges in achieving deep energy renovations at the local level, Jolein discussed the development of cost-neutral, building-related energy performance contracts that private households could use. Such an initiative planned in Amersfoort has received broad support from stakeholders in the Netherlands. However, a significant legal barrier linked with the unclear scope of consumer credit regulation concerning energy performance contracts’ innovative and integral nature has put the project on hold. Jolein thus underlined the need for more cooperation among various national ministries and hoped for more guidance from the European Commission for national governments on implementing credit legislation.
Miguel Ángel García, EU Projects Coordinator at Cartif Technology Centre (Spain), discussed experiences from blending public funds and working with ESCOs, highlighting the critical role of early community engagement and building trust among citizens. The latter is significant when cities introduce new models of project implementation. Miguel also shared Cartif’s experience with testing the revolving fund model, focusing on performance over cost, and an ongoing pilot project investigating Positive Energy Districts. Miguel shared experiences of initial resistance from the citizens, underscoring the importance of co-creation with residents and external support to gain their trust. He also emphasised the benefits of combining various financing instruments and investing in education about the broader impact of improving energy efficiency.
Sanela Mikulčić Šantić, Cooperative Manager of KLIK Cooperative (Križevci, Croatia) introduced the town’s first crowd-investing project that allowed Križevci to mobilise funds for a photovoltaic installation on a municipal development centre. The town raised €54,000 from 93 citizens, offering a 4.5% interest rate over ten years. This project demonstrated financial viability, sparked the formation of a local cooperative, and tested a model that had not been addressed in the national regulations. Sanela discussed the impact of low bank interest rates on citizens’ openness to invest in the town’s projects. She advocated for financial education to boost residents’ participation in renewable energy initiatives. She also noted the role of intermediaries in building trust for crowdfunding and facilitating the work.
Sandrine Deternay from the City of Albertville (France) shared insights into Albertville’s approach to energy savings, emphasising actionable steps and internal fund rotation to finance energy-saving measures. Sandrine discussed the value of Albertville’s decision to act independently rather than relying on external subsidies. This involved allocating a fund for technical actions financed by internal loans to drive energy-saving measures. The savings were reinvested into the fund for subsequent years, creating a self-sustaining cycle. Initially seeded with 100 euros and bolstered by additional resources, the fund grew, allowing for more extensive energy-saving initiatives than originally planned. This demonstrated that small, consistent steps could lead to significant long-term results and foster more vital collaboration between different departments. It also highlighted the organisation’s capacity for internal innovation, leading to an increased ability to invest in larger projects, such as comprehensive building renovations.
Georg Houben, who represented the European Commission’s Directorate General for Energy (DG ENER), emphasised the importance of empowering smaller cities and fostering collaborative efforts to ensure the effective implementation of environmental initiatives across Europe. He provided an overview of the EU Green Deal, highlighting its crucial role in setting ambitious climate goals. He highlighted the ‘Fit for 55’ package, a more immediate plan targeting various objectives by 2030 through a comprehensive legislative approach. Georg emphasised that the success of the Green Deal hinges largely on local action, especially considering that 75% of the population resides in urban areas, noting that a substantial portion of this urban population lives in smaller cities with populations below 100,000. These smaller cities often need more capacity, knowledge, staff, or financial means to engage effectively in European programmes. This leads to a reliance on private financing for city-level interventions. Highlighting the importance of private financing in overcoming these challenges, Georg introduced several key initiatives that support public authorities in the transition. These include the Covenant of Mayors, with about 11,000 cities signed up. On the other hand, the Smart Cities Marketplace connects urban projects with private financing and provides practical knowledge and guidance, as well as Action Grants. It has been instrumental in creating an extensive collection of demonstrative European projects that can be replicated, mainly with private financing. Since 2018, the Marketplace has successfully matched around 130 projects with investments totalling over 615 million euros.
Cristina Mestre Martinez, European Climate, Infrastructure and Environment Executive Agency (CINEA), explained CINEA’s role in implementing funding programmes to support the EU Green Deal’s objectives. These include research programmes like Horizon Europevii and infrastructure initiatives like the Connecting Europe Facility. Cristina highlighted the LIFE programme, particularly its Clean Energy Transition Subprogramme, which continues the work of the H2020 energy efficiency programme, focusing on non-technological aspects of clean energy transition. The programme is essential in facilitating and improving policies at various levels, breaking market barriers, empowering citizens, supporting investments in clean energy transition, attracting private investments, and planning for local and regional authorities. Cristina focused on opportunities for capacity-building for local and regional authorities, highlighting the importance of transforming ideas into actionable investments. She emphasised the value of peer learning and networking, offered by events such as the Covenant of Mayors Investment Forum, European Sustainable Energy Week and Contractors Meetings, emphasising their role in fostering connections and dialogue among various stakeholders. Cristina stressed the need for dialogue across administrative levels to ensure the effective implementation of these initiatives. She addressed the importance of understanding ground-level needs through discussions like the PROSPECT+ Policy Dialogue, which serve as useful consultation phases. Since local authorities are the primary implementers of EU policies, Cristina highlighted various initiatives to convert ideas into actionable investments. These include, for example, the Project Development Assistance (PDA), the European City Facility and the ManagEnergy masterclasses.
Ieva Zalite, who represented the EU Directorate-General for Regional and Urban Policy (DG REGIO), explained the role of DG REGIO, the European Regional Development Funds (ERDF) and Cohesion Funds in supporting sustainable development and the EU’s Green Deal. She detailed the shared management approach with member states and the focus on green initiatives and energy efficiency in the 2021-2027 and 2014-2020 programming periods. Ieva explained that ERDF and Cohesion Fund support can be implemented through grants or financial instruments, such as loans, equity, and guarantees, to stimulate ground-level investments and leverage private contributions. These financial instruments aim to leverage private contributions by reducing investment risks for private investors. She also touched upon the concept of revolving funds, where invested funds return to the region for reinvestment, thus multiplying the impact and emphasised the importance of addressing market failures and promoting green activities. She introduced two models. The first is an energy efficiency financial instrument with a grant component, which targets managing authorities and financial intermediaries to facilitate investments in areas like deep renovation. The second model supports the New European Bauhaus initiative, focusing on urban development and sustainability. Ieva reminded that DG REGIO provides tailored support for setting up financial instruments at the national and regional levels and highlighted the advisory services available through the Fi-Compass platform, a collaboration between the European Commission and the European Investment Bankxxi, which aids in the design and implementation of financial instruments. She encouraged those interested in establishing such mechanisms at regional or national levels to seek support and to consider combining grant components with other financial instruments to address market failures and encourage green activities.
Allison Lobb, Executive Director at Bankers Without Boundaries, also addressed the complexities of the EU funding system and the challenges cities face in navigating it, focusing on the investors’ perspective. She emphasised the need for cities to recognise the potential of different financing models, including non-traditional ones like marketing and sponsorship opportunities. Allison explained that reaching a ‘bankable’ stage is crucial for municipal projects to attract investors. She clarified that a project’s bankability hinges on its financial viability, ability to generate returns for investors, and thorough risk and scenario analysis. She stressed the importance of enforceable contracts and clear objectives to establish economic viability, focusing on cash flows, costs, payback profiles, and the differentiation between debt and equity. Allison also addressed the broader investment landscape, highlighting the diverse range of investors, including financial institutions, industry, and the public sector. She noted the emerging role of crowdfunding and the contributions from the private sector through sustainability, impact budgets, and marketing opportunities. She emphasised the need for a centralised knowledge hub, as developed in the NetZeroCities project, which would streamline information and guide cities in identifying appropriate EU facilities for their projects. To enhance cities’ understanding and capacity in these areas, the NetZero Cities platform plans to introduce city financial advisors. Allison also reflected on the need for increased focus and funding in climate change adaptation, pointing out the current imbalance with most funds directed towards mitigation.
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