Crossing the energy efficiency chasm: an assessment of the barriers to institutional investment at scale, a UK perspective

ABSTRACT

Significant savings in CO₂ can be won from fabric upgrades, and improved forms of heating. An increase in the number of building retrofits and installations of energy efficient plant such as biomass boilers or combined cooling, heating and power plants must be the aim if the UK is serious in meeting its commitment to CO₂ reduction at both the domestic and EU level. A way of achieving this increase, which will need to be significant, would be to tap into the vast funds under management by institutional investors who are required to invest those funds to optimise its monetary return, taking into account the level of risk. The aim of the research is to identify the enabling conditions that would need to exist to attract institutional investment in energy efficiency at scale. The UK Green Investment Bank (GIB) has invested £50 million into three energy efficiency funds, requiring each fund manager to match the amount by attracting investment from institutional investors. It is these funds that have been analysed as a single GIB case study. Embedded units of analysis are on two levels with the individual funds being the first and the institutional investors investing in those funds as the second. The early findings of the research reported here indicate that the emerging key enabling conditions that would make energy efficiency an attractive proposition are (i) the way energy efficiency investments are classified, (ii) the contractual structure of the individual transactions made by the funds and (iii) the experience and familiarity of the fund manager.

KEYWORDS:

• Alternative investments
• asset allocation
• environmental finance
• fund management
• institutional investors