Deutsche Bank pushes for profit from cutting energy consumption

Bloomberg

For energy investors, saving energy has never been as profitable as producing it. That’s starting to change, with institutions from Deutsche Bank AG to Societe Generale SA making it bankable to squeeze more out of electricity and fossil fuels.
Their efforts have the potential to channel more money into energy-saving beyond the $45 billion reaped in 2014, blunting demand for fossil fuels and the global-warming pollution they create, according to data compiled by Bloomberg.
It’s already starting to add a profitable line of lending, supported by state-backed groups such as the European Investment Bank and KfW of Germany. By 2030, efficiency may reduce the bills of energy consumers by $86 billion, eliminating the need for hundreds of power plants around the world, according to the International Energy Agency.
“Energy efficiency has had difficulty getting finance from banks because they’re used to financing something they can see,” said Jessica Stromback, chairman of Joule Assets Europe AB. “It’s is about a reduction, a gap. They can’t really grasp the concept of paying for something that isn’t there.”
For Joule Assets, investments include refitting a building in Barcelona with energy-sipping lights, heating and cooling. SocGen is considering projects that switch out incandescent light bulbs with LEDs. Deutsche Bank expects a job it underwrote at the Polytechnic University of Madrid to cut energy use 27 percent through replacing oil-burning boilers with natural gas and installing thermal solar.
Energy efficiency is a niche of the clean-energy business, which drew $310 billion of investment in 2015, according to Bloomberg New Energy Finance. Neither the London-based research arm nor the IEA in Paris has a handle on what went into the industry last year, since it’s difficult to pin down exactly what qualifies and which companies completed them.
Unlike wind farms or solar-power stations, efficiency projects don’t produce anything valuable to sell like fuels. That means the profit they generate comes in saving energy that isn’t used — a big challenge for accountants trying to figure out who to pay and when, as well as how to assess credit risks, according to a report by S&P Global Inc. Barriers to investment include diversity in the structure of projects, long payback periods, small transaction sizes and a lack of a visible cash flows for debt repayment.
If the efforts work, it may have an enormous impact on energy demand. The Paris-based group estimates advancements in efficiency may suppress global oil demand growth by 23 million barrels of oil a day by 2040, more than the daily production of Saudi Arabia and Russia combined.
Investment in efficiency is growing, up 2.3 percent in 2014, according to BNEF. The European Union has set a target to reduce energy consumption by 20 percent by 2020.