Energy efficiency – a ray of hope in the current environment of rising energy prices
The current geopolitical situation and the current market environment with rising electricity and energy prices shed light on an exceptional investment opportunity: energy-efficient projects. They enable significant electricity savings and at the same time represent an attractive investment approach for our clients.
Colin&Cie talked about proven technologies, new financing models and the huge market potential of energy efficiency strategies in an interview with Bruno Derungs from Aquila Capital's Energy Efficiency Team based in Hamburg.
Bruno Derungs, Energy Efficiency Team, Aquila Capital Hamburg
Question Colin&Cie: What makes the topic of energy efficiency so attractive in the current environment? And how does energy efficiency differ from alternative energies?
Reply Bruno Derungs:
Due to recent geopolitical events, the EU has set new targets for the use of gas for energy production, which foresee a 56% reduction in gas consumption by 2030 compared to 2020. Taking into account that in 2020 the economy was underutilised due to Covid-related staff shortages, this target is even more challenging.
The expansion of traditional, conventional energies (fossil fuels such as coal or gas) is not desirable due to the ecological, social and health problems and leads to high external costs.
In the current environment, the focus is on energy efficiency. Energy efficiency is about saving energy consumption. The primary measures are aimed at energy savings and self-sufficiency through renewable energies. Both aspects reduce energy consumption and thus energy costs as well as dependence on price fluctuations. In the long term, the increasing demand for energy efficiency measures will continue due to their cost effectiveness - even after the energy transition.
Energy efficiency has a high synergy potential with renewable energies (wind, solar or hydropower) in that less energy is needed with each more efficient energy consumption of a machine, building envelope or vehicle. The share of renewable energies in the electricity mix increases as a result.
By way of illustration: The reduction in gas consumption of 56% by 2030 demanded by the EU is to be achieved above all by buildings - especially heating and cooling - with savings of 69%. The German government has defined various measures for this purpose. For example, it strongly promotes the use of heat pumps and bans the use of new oil and gas heating systems from 2025. The German Heat Association expects that this will increase the number of heat pumps from today's 100,000 to 5 times that number by the end of 2025. In addition, a strong growth of large heat pumps for industrial use is to be expected.
Question Colin&Cie: What are the peculiarities of the investment and how can they benefit from rising energy costs?
Reply Bruno Derungs:
Our projects are based on energy savings. Rising energy costs allow even higher savings. This makes the projects even more attractive for the customer.
Energy-efficient projects are very small-scale and require a well thought-out sourcing strategy for new projects. We have focused on cooperations with energy service providers and technology providers who can offer us several projects and with whom we can realise efficient investment processes on a repeat basis. We also focus on geographies that have high energy costs and a weaker financing market.
Rising interest costs make alternative financing, such as bank loans and leases, more expensive. Our financing can better take advantage of flexible, full financing. We are already seeing more enquiries coming our way, which gives our approach an extra boost.
With the security aspect of energy independence, which is important for our economies, as well as increased competitiveness, energy efficiency takes on a further dimension beyond climate change in the course of the energy transition.
Question Colin&Cie: How can the potential described above be made investable for the investor?
Reply Bruno Derungs:
The Aquila Energy Efficiency Team identifies promising projects and assesses them for feasibility, taking into account energy savings and return potential in the financing. The result is a broadly diversified loan portfolio that makes steady and easily predictable interest payments over the term. The expected annual payout of 5% can be described as an attractive investment in the current environment of low interest rates.
Question Colin&Cie: How are the parties involved - you as managers, the energy service providers and the end customers - reacting to the changes with the outbreak of war in Ukraine?
Reply Bruno Derungs:
As an investment manager, we constantly monitor changing market conditions and adapt our communication to clients and energy service providers. This enables us to continuously adapt the benefits of energy efficiency projects. We also adapt our procurement strategy accordingly and increasingly try to identify projects that take the current environment into account. In the current case with the war in Ukraine, we are increasingly focusing on sectors and geographies that are affected by the gas avoidance targets, such as heat pumps for heating and cooling in Germany and Italy.
It is pleasing to see that our investment strategy is in line with the spirit of the times - when the EU wants to free itself from gas dependency on Russia. Basically, we see a higher demand for energy efficiency projects due to the required austerity measures and the increased uncertainty.
