illustration of the structural fund model to set up an ... reports/d4.3... · marte/iee/13/465...

Illustration of the Structural Fund model to set up an energy

retrofit fund (D4.3)

MARTE/IEE/13/465

Deliverable 4.3

Author: Andrea Gramillano (T33)

Date April 2016

Level of Dissemination

PU Public

CO Confidential, only for partnership members (including the Services of the European

Commission - EASME)

MARTE/IEE/13/465 ● “Structural Fund model to set up an energy retrofit fund (D4.3)”

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Table of contents Introduction ........................................................................................................................................... 3 1. Reference framework ..................................................................................................................... 4 1.1. EU Strategic Objectives ................................................................................................................... 4 1.2. Regulatory framework and Governance options .............................................................................. 4 1.3. The ROP ERDF and Energy Efficiency ................................................................................................ 6 2. Financial Instrument Role ............................................................................................................... 8 2.1. Market failures and suboptimal investment situations .................................................................... 8 2.2. Added Value of Financial Instruments ............................................................................................. 9 2.3. Analyses results: leverage quantification and financial instrument added value ............................. 11 2.4. Contribution to the ROP objectives ............................................................................................... 12 3. Investment Strategy ..................................................................................................................... 14 3.1. Financial instrument nature .......................................................................................................... 14 3.2. Eligible projects ............................................................................................................................ 14 3.3. Role of the Fund Manager/ Body implementing the Fund .............................................................. 16 3.4. The financing agreement .............................................................................................................. 18 4. Conclusions and lessons learned ................................................................................................... 20


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Introduction This report illustrates the main features of the FEM (Energy and Mobility Fund) supporting energy requalification and efficiency in Priority Axis n.4 ‘Support the transition to low-carbon economy in all the economic sectors’ of the ERDF ROP 2014-2020 of Marche Region. The first section of the report describes the strategic and regulatory framework, illustrates the governance options and indicates the types of actions promoting energy efficiency in the 2014-2020 ERDF ROP of Marche Region. Based on the ex-ante assessment, the second section illustrates the role of the financial instrument to address market failures, highlighting its added value and its potential contribution to ROP (Regional Operational Programme) objectives. The third section describes the investment strategy and the management arrangements of FEM according to art. 38 (4) (b) (ii) of EU reg. 1303/2013. In particular, this section describes the type of financial instrument, which is the loan with lower than the market rate, supporting energy efficiency in public buildings, investments in public lighting, businesses and productive areas, and the renewal of the public transport fleet. The financial allocation of the ROP resources to the financial instrument is up to € 22 561 968, management costs and fees included. The last section outlines the conclusions and lessons learned for the implementation phase.


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1. Reference framework The section illustrates the reference framework of the financial instrument, notably:

the EU strategic objectives;

the ESIF (European Structural and Investment Funds) regulatory framework;

the structure of the ERDF ROP 2014-2020 of Marche Region.

1.1. EU Strategic Objectives

The EU strategic objectives are defined in:

the EC Communication ‘Europe 2020 Strategy’ COM (2010), which aims at reducing by 2020 GHG emissions by 20%, reducing energy consumptions by 20% and covering 20% of European energy needs through renewable energies1;

the EC Communication ‘Energy Roadmap 2050’ (COM(2011) 885/2), which aims at reducing GHG emissions by 80-95% compared to the level of 1990 through actions of energy efficiency, investments in renewable energies and energy infrastructures.

The 2011 National Reform Programme has identified national targets based on the EU targets: 17% of energy needs covered by renewable energies, a reduction of energy consumption of 27.90 Mtep and a reduction in the CO2 emissions by 13%. Chapter 1 of the ex-ante assessment report provides further details on the national strategy, regional plan (Energy and Environmental Plan) and burden-sharing act2.

1.2. Regulatory framework and Governance options

EU Regulation 1303/2013 lays down general and common provisions for the application of:

Cohesion policy funds, i.e. structural funds such as the European Regional Development Fund (ERDF), the European Social Fund (ESF) and the Cohesion Fund;

The European Agricultural Fund for Rural Development (EAFRD);

The European Maritime and Fisheries Fund (EMFF). However, Article 1 of EU Regulation 1303/2013 states that the rules set out in the Regulation apply without prejudice to the provisions laid down in Regulation (EU) 1306/2013 of the European Parliament and European Council and the specific rules laid down in Regulation (EU) 1301/2013 (the “ERDF Regulation”), 1304/2013 (the “EFS Regulation”), 1300/2013 (the “CF Regulation”), 1299/2013 (the “ETC Regulation”), 1305/2013 (the “EAFRD Regulation”) and the EMFF Regulation. EU Reg. 1303/2013 defines the thematic objectives for ESI (European Structural and Investment) funds and, in particular, thematic objective 4 ‘supporting the shift towards a low-carbon economy in all sectors’ represents the strategic reference of Priority Axis n.4 of ERDF ROP 2014-2020 of Marche Region. In terms of resource allocation, according to art. 4 of ERDF Regulation, Marche Region, as more developed region, has allocated 20% of the resources under the aforementioned thematic objective n.4. Article 38 of (EU) Regulation 1303/2013 proposes the following implementation options:

Investing, at European level, in financial instruments managed directly or indirectly by the European Commission (paragraph 1(a) of Art. 38);

Investing, at regional or other levels, in financial instruments managed by or under the responsibility of the Managing Authority (paragraph 1(b) of Art. 38).

1 See http://ec.europa.eu/eu2020/pdf/COMPLET%20EN%20BARROSO%20%20%20007%20-%20Europe%202020%20-

%20EN%20version.pdf. 2 See the ex-ante assessment report http://www.europa.marche.it/Portals/0/Documenti/FESR/CdS/2015_0625/cds2015_Strumenti%20finanziari%2014-20.pdf.


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Under the option of financial instruments set up at national, regional, transnational or cross-border level managed by or under the responsibility of the Managing Authority (paragraph 1(b) of Art. 38), the Managing Authorities may alternatively:

provide, in accordance with paragraph 3(a) of Art. 38, a contribution to those financial instruments complying with the standard terms and conditions laid down in Reg. 964/2014 (‘off the shelf’ instruments);

opt for a ‘tailor made’ instrument (already existing or newly created), specifically designed to achieve the specific objectives and the priorities of the operational programme;

invest in the capital of existing or newly created legal entities (paragraph 4(a) of Art.38);

entrust implementing tasks to: o the EIB (paragraph 4(b)(i) of Art.38); o international financial institution in which a Member State is a shareholder or financial

institutions established in a Member State aiming at the achievement of public interest under the control of a public authority (paragraph 4(b)(ii) of Art.38);

o a body governed by public or private law (paragraph 4(b)(iii) of Art.38);

undertake implementation tasks directly, in accordance with paragraph 4(c) of Art.38. The different governance systems are shown in the figure below. Figure 1 – Financial instruments governance options

Source: Fi-Compass (2015) “Developing an action plan. Design, set-up, implementation and winding-up of financial instruments”.

Marche Region has chosen the option corresponding to Art.38, paragraph 4, let. b), ii) of Reg. (EU) 1303/13.


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1.3. The ROP ERDF and Energy Efficiency

The 2014-2020 ROP ERDF of Marche Region, adopted by the European Commission in February 2015, includes seven priority axes:

Axis 1 ‘Reinforcing research, technological development and innovation’, under thematic objective 1 and investment priority 1b for a total funding of € 114 187 378 (38,85% of the total);

Axis 2 ‘Improving information technologies access’, under thematic objective 2 and investment priorities 2a and 2c for a total funding of € 24 337 472 (7,21% of the total);

Axis 3 ‘Promoting SMEs competitiveness’, under thematic objective 3 and investment priorities 3b and 3d for a total funding of € 67 812 424 (20,1% of the total);

Axis 4 ‘Supporting the transition towards a low-carbon economy in all sectors’, under thematic objective 4 and investment priorities 4a, 4b, 4c and 4e for a total funding of € 65 449 929 (19,4% of the total);

Axis 5 ‘Promoting climate change adaptation, risk prevention and management’, under thematic objective 5 and investment priority 5b for a total funding of € 22 837 474 (6,77% of the total);

Axis 6 ‘Protecting the environment and promoting resource efficiency’, under thematic objective 6 and investment priority 6c for a total funding of € 32 624 964 (9,67%);

Axis 7 ‘Technical assistance’ for a total funding of € 5 066 824 (3% of the total) The Marche Region OP (operational programme) has opted for the use of financial instruments based on ex-ante assessment for axes 1, 3 and 4. Investments of the priority axis n.4 aim at developing energy efficiency, reducing greenhouse gas emissions, in particular for enterprises, public buildings, public lighting system and local public transport in urban areas. Within Axis 4, the resources are allocated according to the investment priorities laid down in the ERDF Regulation (Art.5) and Specific Objectives and a series of actions identified in the Partnership Agreement Italy-EU. Axis 4 of ROP ERDF Marche Region comprises 4 investment priorities and 4 corresponding specific objectives. Investment priority 4a ‘promoting the production and distribution of energy derived from renewable sources’ and corresponding specific objective n.11 exclude the activation of financial instruments. The other investment priorities, potentially activating financial instruments, are outlined in the table below, with corresponding specific objectives and series of actions. Table 1: Axis 4 priorities, specific objectives and actions providing for the activation of financial instruments

Priority Specific Objective Actions

4b - Promoting energy efficiency and renewable energy use in enterprises

n.12 “Reduction of energy consumption and emissions in enterprises and integration of renewable energy sources”

12.1 Incentives aimed at reducing energy consumption and greenhouse gas emissions of enterprises and production areas, including the installation of plants for electricity production from renewable resources for self-consumption, prioritising high-efficiency technologies

4c - Supporting energy efficiency, smart energy management and renewable energy use in public infrastructure, including in public buildings, and in the housing sector

n.13 “Reduction of energy consumption in public buildings and/or structures for public use, residential and non-residential facilities, and integration of renewable energy sources”

13.1 Promotion of eco-efficiency and reduction of primary energy consumption in public buildings and structures: restructuring measures of individual buildings or groups of buildings, installation of intelligent remote-controlled systems, regulation, management, monitoring and optimisation of energy consumption (smart buildings) and greenhouse gas emissions also through the use of technological mixtures.

13.2 Adoption of technological solutions for the reduction of energy consumption of the lighting networks.


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Priority Specific Objective Actions

4e - Promoting low-carbon strategies for all types of territories, in particular for urban areas, including the promotion of sustainable multimodal urban mobility and mitigation-relevant adaptation measures

n.14 “Increasing sustainable mobility in urban areas”

14.1 Renewal of rolling stock

The ROP allocates the financial resources to the entire priority Axis either through financial instruments or through other means, according to the expenditures categories laid down in Reg. 214/2014 and illustrated in the table below. For a total allocation to the Axis equal to € 65 449 927.86, approximately 3 million euros are allocated to renewable energies biomass (linked to investment priority 4a) and for intelligent transport systems under investment priority 4e. The main share of the resources is dedicated to SMEs energy efficiency (about 9.8 million), clean urban transport (27.8 million) and public infrastructures renewal (about 21 million). The values reported in the table below build on the table 7 of the Priority Axis n.4 of the ROP and are to be considered indicative and cumulative of the ERDF contribution. Table 2 Category of Expenditure ROP ERDF 2014-2020 – Axis 4

Category of Expenditure Resources

011. Renewable Energies: biomass € 3 462 496

013. Public infrastructures renewal in the field of energy efficiency, demonstration projects and support measures

€ 21 099 972

043. Infrastructures and promotion of clean urban transport (including installations and rolling stock)

€ 27 837 474

044. Intelligent transport systems (including the introduction of demand management, toll systems, IT monitoring, information systems and controls)

€ 3 262 496

068. Energy efficiency and SMEs demonstration projects and support measures € 9 787 490

Source: Calculations of ROP Marche 2014-2020

The potential beneficiaries of TO4 of ROP ERDF are: Marche Region, local bodies individually and/or collectively and other local bodies, associations of local authorities, entirely public companies, public-private partnerships, enterprises.


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2. Financial Instrument Role

This chapter illustrates the main results of the ex-ante assessment for thematic objective 4 of the ROP ERDF 2014-2020 elaborated in line with Art.37 of Reg. (EU) 1303/2013 and presented in the course of the first meeting of the Monitoring Committee of the 2014-2020 ERDF Operational Programme of Marche, held on June 25th 20153. Some of these points are summarised below.

2.1. Market failures and suboptimal investment situations

The analysis highlights the following major market failures:

Negative environmental externalities, given that the total cost linked to CO2 emissions is not entirely borne by those who are responsible for the emissions. This type of failure is inherently linked to the idea of air as a ‘public good’ and it impacts in the medium-long term on the use of the resources;

Asymmetric information, i.e. when a private investor does not grasp the quantity of energy saving and the potential generation of energy obtainable from his own asset, or when the private investor prioritizes other types of interventions majorly linked to core business activities;

Rebound effect, which occurs after an increase in energy efficiency and a relative cost reduction for consumers, and which results in an increase of energy consumption;

Divergent objectives, (‘principal-agent problem’) which occur in energy efficiency interventions and in energy-saving of existing rented buildings, when the owner of the building has little incentive in investing in these kinds of intervention being the tenant the one benefitting from cost reduction;

Small-sized projects (or not ready for the investment) and high transaction costs, which can obstruct access to the credit market, particularly relevant given the small or medium-size of enterprises of Marche Region.

From the supply side, market failures lie mainly in the scarcity of financial and project proposals, causing barriers to energy investments. Specifically, the following critical issues may be identified:

lack of proper access to financial instruments;

poor supply capacity or limited expertise in the energy sector;

insufficient programming, which implies a lack of organic programming of intervention models on the basis of economic and financial profitability analyses.

The use of financial instruments may be an opportunity to: facilitate access to resources for investments; promote an increased capacity in the energy sector; stimulate programming and planning. Furthermore, as shown in the following table based on the ex-ante assessment, with a total investments need of about 400-520 millions of euros, a financial instrument could provide about 100-130 million euros. The ROP ERDF resources could contribute to such amount. In addition to ROP financial allocation, the resources of the ‘Fund manager /implementing body’, private investors and also final recipients could partially cover the investments need.

3 The ex-ante assessment has examined the following aspects: a) analysis of market failures, suboptimal investment situations and financial need; b) evaluation of the added value of the financial instruments; c) estimate of additional public and private resources; d) evaluation of lessons learned and future implications; e) analysis and evaluation of the investment strategy; f) evaluation of expected results, including the indicators; g) rules for possible updates.


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Table 3 Estimate of the financing needs for energy efficiency interventions (millions of euros)

Intervention type Total Financial need Investment need

Energy efficiency of public buildings of which4:

200-300

- Energy efficiency of hospital structures

70-80 15,50

- Energy efficiency of educational buildings

75-112 15-34

Energy efficiency ERAP housing 30-45 6-13,5

Energy efficiency of lighting installations

12-16 12-16

ULT vehicle fleet renewal 160,00 50,00

Total financial need 402-521 98,5-129

Source: Ex-ante assessment of financial instruments – thematic objective 4

Comparing the investment needs estimated on the basis of the negative investment trends of the last few years, it is possible to assert that a financial instrument is needed for addressing the financing difficulties of planned interventions. Likewise, financial instruments serve to address credit restriction and the overall unstable economic situation5.

2.2. Added Value of Financial Instruments

The implementation of instruments promoting a more rational use of resources is also based on already tested experiences in the previous programming period. The major investment instruments for energy measures are:

the ELENA programme managed by the European Investment Bank (EIB);

the JESSICA initiative, to be developed within urban areas contexts and other loan initiatives of the European Investment Bank;

the European Energy Efficiency Fund;

the LIFE programme 2014-2020;

the Kyoto Fund;

the Framework for Research – Horizon 2020. The EIB’s programme ELENA offers wide margins of positive synergies. Specifically, the assessment focuses on:

quantitative analysis and the estimation of the added value and of the leverage provided by the financial instrument, in public and private resources terms that the financial instrument might collect;

qualitative analysis of the added value of the financial instrument and of the main implications of the proposed interventions;

the coherence of the financial instrument with other public interventions and national and European funding sources;

the implications of State aid;

the mechanisms that seek to involve private investors and to contain market distortions.

4 In the tertiary public domain, about 1.000-1.500 buildings are considered as requiring an intervention. The expenditure for energy efficiency development ranges from 120 to 150 Euros/sq. m. 5See, for example, the preliminary inquiry of the Chamber of Deputies on public local transport of 2014 http://www.camera.it/leg17/browse/1102?id_commissione=09&shadow_organo_parlamentare=2083&sezione=commissioni&tipoDoc=elencoResoconti&idLegislatura=17&tipoElenco=indaginiConoscitiveCronologico&calendario=false&breve=c09_pubblico&scheda=true.


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The investor’s contribution to the fund alters the convenience of the financial instrument for the different parties involved in the implementation of the programme, at least under two distinct profiles. Firstly, the greater the private investors’ contribution to the Fund, the less favourable conditions provided to the concessionaire (ESCo or leasing companies). This occurs because the share of the loan granted with low-interest rates is lower with higher risk of no longer bankable and financially inconvenient interventions. Secondly, given that energy efficiency interventions require a public grant, the higher the share of the FEM the higher the ERDF contribution to the final recipients. This will imply a reduction of the resources eventually allocated to other actions under TO4. Secondly, the private investor’s contribution affects also the leverage, since the amount of resources allocated by the final recipient (for example, ESCo or leasing companies) is not taken into account in the calculation, in conformity with what stipulated in the European regulations. Therefore, it is necessary to reconcile different necessities in the framing and selection of investors and final recipients stage. As it has been discussed in the previous paragraph, the contribution provided by several parties may be different depending on the types and characteristics of the interventions, in view of the expected return emerging in terms of use of resources. The allocation attributed by the Region to TO4 under ROP ERDF amounts to about 65 million euros (considering also the share of national co-financing), of which 45 financeable as grants and the remaining 20,3 million through the implementation of financial instruments.

Table 4 Financial allocation for the TO4 ROP ERDF Marche 2014-2020

ERDF Funds National Co-financing Total

Grants 22.580.225,00 22.580.225,00 45.160.450,00

Financial Instruments 10.144.739,00 10.144.739,00 20.289.478,00

Total 32.724.964,00 32.724.964,00 65.449.928,00

Source: Ex-ante assessment of financial instruments – TO 4

As shown in the simulation discussed in the previous paragraph, the condition that makes the implementation of the Marche Energy Fund advantageous for all involved parties may be achieved through supporting grants interventions estimated at about 35% for buildings energy requalification interventions and at about 30% for local urban transport modernisation, while the funding of the final recipients amounts to circa 25% of the total investment. Considering the about 20 millions euros made available by the ROP ERDF Marche Region for the 2014-2020 period for the implementation of financial instruments, a realistic contribution from the financial intermediaries to the Marche Energy Fund amounts to circa 8,7 millions euros (i.e. the 30% of the overall fund budget, a value which is lower if compared to similar experiences in the current programming period). In addition to this contribution, the final recipients of the interventions may provide further private resources amounting to 16-18 million euros, depending on the regional contribution through grants. Overall, as it is illustrated in the following table, the estimation of the possible public and private resources that might be potentially involved in the financing of the interventions, depending on the grant contribution, is in-between 72,4 millions of euros (if the grant contribution to the investments is at 35%) and 64,4 millions of euros (if the grant contribution equals 30% of the investment).


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Table 5 – Estimation of public and private resources that can be potentially activated

Hypothesis 1

(grant 35%)

Hypothesis 2

(grant 30%)

Euro % Euro %

Energy Fund Marche of which 28.984.968,57 40,0% 28.984.968,57 45,0%

- ERDF 20.289.478,00 70,0% 20.289.478,00 70,0%

- financial intermediaries 8.695.490,57 30,0% 8.695.490,57 30,0%

Other private resources 18.115.605,36 25,0% 16.102.760,32 25,0%

ERDF grant contribution 25.361.847,50 35,0% 19.323.312,38 30,0%

TOTAL 72.462.421,43 100,0% 64.411.041,27 100,0%

It is a relevant resource amount, especially if the difficulties encountered in the 2007-2013 programming period in implementing the energy requalification and efficiency interventions of public buildings are considered, and which the involvement of third parties does not necessarily solve. This requires an on-going thorough evaluation, as well as the establishment of verification and monitoring mechanisms of the action progress for the entire implementation-time of the instrument.

2.3. Analysis results: leverage quantification and financial instrument added value

The evaluation of the financial instrument added value aiming at supporting the transition towards a low-carbon economy must compare the results which may be achieved through the financial instrument with other forms of support, verifying if this choice allows to pursue the regional strategy objectives in the most efficient and effective way. Just as indicated in the guidelines on the financial instruments ex-ante assessment, the evaluation must take into account three series of elements:

the financial instrument leverage, which is directly affected by the contribution provided by private investors;

the direct financial benefits, which the investments financed by the financial instrument are able to achieve, expressed in cost savings thermic and electric power use, etc.;

the direct economic benefits, expressed in physical (greenhouse gas emissions reduction, number of reclassified buildings) as well as monetary terms; this latter aspect is expressed also through the adoption of shadow-prices system capable of attributing an economic value to the positive externalities produced by the interventions.

As far as the first aspect is concerned, it must be taken into account that the calculation of the financial instrument leverage does not necessarily coincide with the added valued. The leverage, on the basis of what stipulated by Art.140 of the financial Regulation, is calculated as relation between the national, public and private resources and the resources of the SIE Funds (European share), but contrarily to the added value it does not take into consideration:

the financial contribution of the investments allocated by the final recipients of the interventions;

the financial nature of the instrument, e.g. whether the support comes in the form of grant or repayable financing;

the future value of additional investments that might be implemented, other than in the programming cycle, in the presence of revolving funds.

Specifically, the quantitative analysis of the added value brought about by the financial instrument has been evaluated in alternative to the adoption of a grant, where the final recipient, local authorities or LPT (local public transport) companies contribute to the investment respectively with a share of 10% for energy requalification interventions of buildings and with a share of 25% concerning the investments necessary for the fleet renewal. Moreover, it is clear that the evaluation of the added value of the financial instruments shall take into consideration the possible intervention portfolio, which might potentially be implemented through the instrument, as well as the financial allocation to the various types of intervention types.


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To this end, as indicated in the financial instruments ex-ante assessment guidelines, the evaluation has been elaborated on the basis of standard projects characteristics, based on what defined in the case studies simulations previously illustrated, concerning both the added value quantification emerging from public buildings requalification intervention and LPT modernisation interventions. As far as energy requalification interventions of public buildings are concerned, the simulations highlight the capacities of the financial instrument to mobilise a consistent volume of additional private resources in the pursuit of an economy with low greenhouse gas emissions. In consideration of SIE Funds contribution (ERDF and national co-financing) of about 30 million euros, the total amount of mobilised funding for the potential implementation of the financial instrument is almost 48 million euros, with a mobilised resource volume of about 33 million euros, in the eventuality of supporting the interventions through the employment of grants. The major contribution of the financial intermediaries (around 5,7 million euros) and by the final recipients of the interventions (ESCo) allows to increase the leverage (multiplier effect) from 2 of the grant to 2,38 of the financial instrument, while the added value6 would be 2.22 with the grant and 3.83 with the financial instrument. More specifically, it can be pointed out how the use of the financial instrument would allow to:

reclassify 106 public buildings, as compared to those which could be reclassified through the use of grants;

obtain electric and thermal energy saving of over 3,7 million euros per year against the 2,6 million of the grants;

obtain an energy saving amounting to over 24 thousand MWh/year as compared to 17 thousand MWh/year with grants;

achieve a reduction in CO2 emissions amounting to about 331 tons/year as compared to the 232 tons/year with grants.

2.4. Contribution to the ROP objectives

The contribution of the Fund to the ROP objectives is direct in: specific objective 12 “Energy consumption reduction and emissions reduction and integration with renewable resources”; 13 “Energy consumption reduction in public buildings and public structures or for public use, residential and non-residential facilities and integration with renewable sources”, and 14 “Increasing sustainable mobility in urban areas”. The establishment of a dedicated monitoring system handled by the Fund Manager and the Managing Authority might contribute in measuring the effective contribution of the Fund to the specific objectives of the ROP. This system shall allow, through a dashboard of standardised and computerised indicators, an effective data-gathering and shall provide operational information on the functioning of the fund, i.e. on the flows and on the related target groups, thereby contributing to the accountability of the financial instrument. Some of the output or project indicators, which might be employed in the measurement of the Fund contribution, are indicated below:

reduced energy consumption (KWh/year);

avoided emissions (TeP/tCO2);

total investment (M/Euros);

number of purchased buses in the context of vehicle fleet renewal;

number of local public transport companies;

number of public buildings interested in energy efficiency interventions;

number of public bodies that are beneficiaries;

number of ESCos;

number of enterprises (including SMEs) that are beneficiaries/final recipients;

Number of public lighting interventions;

number of jobs created in the recipient enterprises;

6 In the added value, the refunded resources are calculated as the net present value of the repayment of the loans discounted by a rate of 3%.


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number of leasing companies. Furthermore, the list encompasses some indicators on the management of the financial instrument:

credit losses, (non reimbursed loans / total loans);

management costs (management costs / total loans);

private investments leverage ((private investments / (private investments + ERDF + public resources);

savings of CO2 emissions for 1,000 euro invested;

additional costs (ESCo remuneration). These indicators have been included in the selection procedure of the fund manager and then considered for the signature of the funding agreement.


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3. Investment Strategy The chapter illustrates the nature of the financial instrument on the basis of what indicated in the ex-ante assessment and in the contract notice for the Fund manager’s selection, the eligible estimated projects (including the interventions of the MARTE project), the role and the characteristics of the Fund Manager.

3.1. Financial instrument nature

The regional operation programme provides for the use of different financial instruments for the investment priorities of Axis 4: for investment priority 4b, low-interest loans and/or guarantees; for investment priority 4c, risk capital or low-interest loans. The ex-ante assessment provides a reference framework for the analysis of the different implementation options (advantages and disadvantages) of the main financial instruments and allows to shed light on more feasible and appropriate loans and guarantees for the type of intervention in consideration. In fact, equity as a financial instrument is hardly applicable considering those interventions with a “public” nature and the recipients taken into account (local bodies, ULT companies, etc.) and the possible limitation of the borrowing capacity, as well as the complexity of the instrument and the necessity to involve professionals with highly qualified expertise. The financial instrument comprises different types of subsidised loans (between 0% and 1,5%) intended for: the realization of energy efficiency interventions; the reduction of energy consumption; the reduction of enterprises greenhouse gas emissions and production zones. The financial allocation of the financial instrument amounts to € 22.561.968 (gross value) issued by ROP ERDF Axis 4.

3.2. Eligible projects

The “Energy and Mobility Fund” is relevant for the purposes of Reg. 1303/13/EU for issuing direct low-interest rates loans: (B.1) For the realization of energy efficiency interventions in public buildings and the adoption of technological solutions for energy consumption reduction of lighting networks; (B.2) For the realization of energy efficiency interventions in public health facilities, already identified by Marche Region in the M.A.R.T.E project (IEE/13/465), which started in March 2014 and which is co-financed by the European Commission – European Agency for Small and Medium Enterprises (EASME) within the European framework of Energy Europe programme (grant agreement signed on 21/02/2014); (B.3) For the supply of local urban transport vehicles; (B.4) For energy consumption reduction and greenhouse gas emission of enterprises and production zones. For projects (B.1), (B.3) and (B.4) the total funding (capital contribution and subsidised loan) lies between a minimum of € 25.000,00 (twenty-five thousand) and a maximum of € 3.000.000,00 (three millions/00). These values are to be considered indicative, without prejudice to the possibility of the Region to modify these values during the issuing of the regional call for tender.

B1 Projects

B1 intervention is divided into two typologies: B1.1 and B1.2. On the one hand, B1.1 is intended for buildings owned by Marche Region, implementing/operating bodies of Marche Region, regional healthcare companies according to Art.2 of L.R. 13/03 and s.m.i as well as provinces, municipalities and other public bodies or consortia of bodies in conformity with Action 13.1 of the ROP ERDF. On the other hand, B1.2 is intended for those interventions referred to Action 13.2 of the ROP ERDF, namely for public lighting modernisation and the installation of automatic regulatory systems, switching on and off of light points (brightness sensors) or remote-control systems and remote energy management of public lighting networks. In this respect, the final recipients, other than those of B1.1 are other public bodies, consortia of bodies, public investee companies and companies selected by public tender. In both actions, energy service companies (ESCo) selected by the contracting entity through open tender and public-private partnership forms, may as well receive financial support.


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Table 6 ROP Actions, type of eligible project, final recipients and ROP contribution to the Fund

ROP Actions 13.1 13.2 13.1 14.1 12.1

Type of eligible projects B1.1 (public buildings efficiency)

B1.2 (lighting networks)

B.2 (healthcare facilities MARTE project)

B.3 (ULT renewal of rolling stock)

B.4 (SMEs efficiency)

Fin

al R

ecip

ien

ts

Energy Service Companies (ESCo), selected by the contracting authority through public and transparent tender procedures; Public-private partnerships

x x x

Public bodies, individual or in association local bodies

x x x

Other public bodies, consortia of bodies, entirely public investee companies, public-private partnerships, ULT companies and leasing companies directly selected by the contracting body through public and transparent tender procedures

x x

Enterprises for energy efficiency projects

x

Indicative Maximum ROP Contribution to the Fund (€)

3.106.807 933.333 4.620.999 9.333.333 4.567.495

Source: Elaboration on tender notice (without post comma values)

The interventions are approximately constituted by a grant contribution (constituting maximum the 40% of the total eligible investment) and by a subsidised loan, constituting up to 35% of the total eligible investment, in accordance with the state aid rules (p.15). The rest of the financing may be provided by a private share of the Implementation body/Fund Manager, by a bank or by an affiliated financial intermediary. Within the Fund, the total investment of Marche Region for B1 projects may maximum be equal to € 4.040.140 (€ 3.106.807 for B1.1, i.e. increasing energy efficiency of public buildings corresponding to action 13.1 of the ROP Marche, and € 933.333 for B1.2, i.e. energy consumption reduction of lighting networks corresponding to action 13.2 of the ROP Marche).

B2 Projects

The financial instrument is meant to increase the energy efficiency of the buildings owned by A.S.U.R Marche, specifically identified by Marche Region in relation to the previously mentioned M.A.R.T.E project (Petritoli Policlinic, Sant’Elpidio a Mare Policlinic, Urbino Hospital, Pergola Hospital, San Benedetto del Tronto Hospital). The potential final recipients are the same of B1.1. According to the energy analyses conducted in relation to the pilot project M.A.R.T.E, the total investment (total intervention cost) amounts to € 11.331.902 with a contribution from the revolving fund of low-interest rates loans, which can be equal to the 42% of the total eligible investment, i.e. € 4.621.000.


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B3 Projects

The financial instrument aims at financing projects relating to Action 14.1 of the Regional Operational Programme ERDF of the Marche Region. The total budget that Marche Region makes available amounts maximum to € 9.333.333,33. The possible final recipients are public bodies, consortia of bodies, entirely public investee companies, public-private partnerships, LUT companies and leasing companies directly selected by the contracting body through clear and open public tendering procedures.

B4 Projects

The financial instrument aims at reducing energy consumption and greenhouse gas emissions of enterprises and production zones, in accordance with Action 12.1 of the Regional Operational Programme ERDF of Marche Region. The total budget that Marche Region makes available amounts maximum to € 4.567.495. The resource allocation of the financial instrument along with other grant resources will take place within the limits laid down in the State aid rules.

3.3. Role of the Fund Manager/ Body implementing the Fund

The Fund manager, which is also the body implementing the Fund, has to be selected among: banks registered in the association of banking groups in accordance with Art.13 of legislative Decree 385/93; parties which can exercise banking business in accordance with Art.16(3) of legislative Decree 385/93; financial intermediaries registered in the Special List ex. Art.107 of legislative Decree 385/93. The Managing Body shall possess precise general requirements, professional competence and qualification, economic and financial capacity and technical and professional capacity. The Fund manager, as specified in the call for tender, shall ensure that it will carry out what established in its technical offer and it will endeavour to:

a) finance only eligible projects in accordance with the ROP actions criteria; b) comply with the investment strategy indicated in the call for tender; c) guarantee an adequate human resources team; d) establish and maintain a dedicated accounting and traceability system; e) maintain records as laid down in the current provision; f) comply with the binding targets and timing.

The delegated Regulation EU nr. 480/2014 of 3rd March 2014 sets out guidance as to the costs and the management fees. In accordance with Art.12 of delegated Regulation EU nr. 480/2014, the Managing Body calculates costs and management fees, which can be declared as eligible expenditures as laid down in Art.42, paragraph 1, letter d of Regulation (EU) nr. 1303/2013 according to the following criteria:

the disbursement of contributions provided by the ESI Funds programme;

the resources paid back from investments or from the release of resources committed for guarantee contracts;

the quality of measures accompanying the investment before and after the investment decision to maximise its impact;

the contribution of the financial instrument to the objectives and outputs of the programme. Additionally, the Managing Authority, as indicated in the Regulation 480/2014 abovementioned, shall inform the Monitoring Committee yearly on the modalities of calculation of the incurred management costs or management fees of the financial instrument. Art. 13 of delegated Regulation EU nr. 480/2014 sets out the thresholds of the expected remunerations for the entity implementing the financial instrument, as well as the aggregate amount of the management costs and fees. Two types of remuneration can be distinguished: first, remunerations that can be declared as eligible expenditures in accordance with Art.42, paragraph 1, letter d) of Reg. EU 1303/2013; second, basic and result-related remunerations. Base remuneration is:

0,5 % per annum of programme contributions paid to the financial instrument, calculated pro rata temporis from the date of effective payment to the financial instrument until the end of the eligibility


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period, the repayment to the managing authority, or to the fund of funds, or the date of winding up, whichever is earlier.

Performance-based remuneration is:

For a financial instrument providing loans, 1 % per annum of the programme contributions paid within the meaning of Article 42(1)(a) of Regulation (EU) No 1303/2013 to final recipients in the form of loans, as well as of resources re-invested which are attributable to programme contributions, which have yet to be paid back to the financial instrument, calculated pro rata temporis from the date of payment to the final recipient until repayment of the investment, the end of the recovery procedure in the case of defaults or the end of the eligibility period, whichever is earlier.

Other than the maximum amounts abovementioned, the delegated Regulation sets out the limits that the aggregated amount of costs and fees cannot exceed during the eligibility period, in accordance with Art.65, paragraph 2 of Regulation (EU) nr. 1303/2013. A general overview of these limitations is provided in the following table. Table 7 – Maximum amount of the aggregated costs and management fees

Maximum amount of the aggregated costs and management fees

Fund of Funds 7 % of the total amount of programme contributions paid to the fund of funds

Financial instrument providing equity 20 % of the total amount of programme contributions paid to the financial instrument

Financial instrument providing loans 8% of the total amount of the programme contributions paid to the financial instrument

Financial instrument providing guarantees

10% of the total amount of the programme contributions paid to the financial instrument

Financial instrument providing micro-credit


Financial instrument providing grants, interest rate subsidies or guarantee fee subsidies


Source: Evaluation group on the basis of delegated Regulation EU n.480/2014

In the evaluator’s opinion, management costs and fees should also be considered in the monitoring system so as to include a series of indicators that measure the specific performance of the financial instruments (see, for example, chapter 6 of the Report). As required by Art.37, paragraph 7 of the Regulation laying down common provisions, financial instruments can be combined with grants. Grants that can be combined in a single operation with financial instruments are:

technical support to the final recipients for the achievement of the objectives of the investment already subsidised;

interest rates subsidies;

concession of guarantees for credit access. The final recipients of subsidies provided by a financial instrument funded by ESI funds may receive support also from other ESI Funds or from other programmes or from another financial instrument supported by the EU, provided that the rules on State aid are respected. It should be noted that these combinations of contribution are part of one single operation, whose eligible expenditures are different from other intervention sources, and in this case, separated records are maintained for each source of assistance. These two types of support indicate two distinct operations. As required by paragraph 9 of Art.37 of Regulation (EU) nr. 1303/2013 the combination of support provided through grants and financial instruments referred to in paragraphs 7 and 8 may, under the conditions referred to in the Union’s State aid rules, regard the same item of expenditure provided that the sum of all combined forms of support does not exceed the total amount of the item of expenditure in consideration.


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Grants are not used to repay supports received from financial instruments. Financial instruments are not used to pre-finance grants. The main advantages of combining financial instruments with the support provided by grants include:

supporting the transition from a previous grant use towards a “revolving” mechanism;

flexibility in choosing the appropriate combination, keeping into account the real needs of the final recipients;

effectiveness of EU public spending as compared to the use of grants only.

3.4. The funding agreement

The funding agreement is the legal agreement between the Managing Authority and the Fund of Funds or between the Managing Authority and the financial intermediary, or where applicable, between the Fund of Funds and the financial intermediary for the management of the financial instrument. The funding agreement, regulated by Annex IV of EU Reg. 1303/2013, must include terms and conditions for the implementation of the financial instrument, defining expected results and added value, describing the implementation strategy, management activities, financial reporting, control and audit, and regulating the requirements and procedures for managing capital gains, interests and phased payments, as well as the rules on calculation of management costs payment. Decree n. 205/POC of 2/12/2015 regulates the services for establishing and managing a financial instrument as provided by ROP ERDF Marche 2014-2020 Priority Axis 4. More specifically, Annex 5 of the Decree comprises a first funding agreement draft for the management entrustment of the financial instrument for the FEM. The following table shows the synergies between the main points of Annex IV of Reg. 1303 and the articles advanced in Annex 5 of Decree n. 205/POC.

Annex IV Reg. (EU) 1303/2013 Annex 5 Decree n.205/POC of 2/12/2015

A Strategy or investment policy Art. 3 / Art 4 / Art 5 / Art 9

B Business plan Annex A of the Agreement

C Targeted outcomes Art. 9

D Control and reporting Art 13

E Audit Art 13

F Phased payments Art. 8

G Interests and other capital gains -

H Management costs Art. 12

I The rules relative to the reuse of resources until the end of the eligibility period

Art. 11

J Use of the resources after the end of the eligibility period Art 15

K Possible withdrawal or partial withdrawal Art.22

L Independence and conformity Art. 9

M Liquidation Art. 16

Let us put forward some considerations on the formal aspect to bear in mind for the final version of the financing agreement:

The sequence of the articles of the agreement should follow more accurately the structure of Annex IV of Reg. 1303. Furthermore, it would be appropriate to refer to Annex IV.


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In the articles of the Agreement it is appropriate to mention more often the articles of Reg. 1303/2013

Overall, concerning the content side, all the major elements indicated in Annex IV of the Regulation have been handled in the Agreement proposal. However:

1. More details on the requirements and procedures for managing interest and other gains generated, including acceptable treasury operations/investments, and the responsibilities and liabilities of the parties concerned (letter G of Annex IV of Reg. 1303);

2. More details and clarity is required both for the rules related to the reuse of resources until the end of the eligibility period (letter I, and art.11), and for the use of the resources after the end of the eligibility period (letter J, and art.15).

3. Some important aspects should be discussed in specific articles: a. the expected results (letter C) which in the current draft are part of Art.9 dealing mainly with

the activities of the Managing Body and performance execution; b. financial products to be offered (letter A) currently included in Article 4 regarding the

strategic objectives and the ex-ante assessment; c. the control activities and (financial) reporting (letter D) currently included in Art.13 dealing

with audit activities; d. audit activities (letter E) currently included in Art.13 dealing also with control activities and

(financial) reporting. 4. Some elements of Annex A of the Agreement (mentioned in Art.4), i.e. the ex-ante assessment,

should be more emphasized and should also be mentioned in the Agreement text, in particular the added value and the leverage effect of the financial instrument (i.e. the estimation of the eventual additional public and private resources).

5. In the description of the expected results, the contribution of the latter should be emphasized just as the contribution of the financial instrument to the specific objectives and to the results of the relevant priority (see letter C of Annex IV of Reg. 1303).

6. More details and clarity on provision and management modes of the phased payments are required (letter F).

7. Reconsider the necessity of inserting a specific article on the obligations of the final recipient (art.10), given that this issue is not included in the elements described in Annex IV of the Regulation.

8. Given that the resources that the Region allocates to TO4 in the context of the ROP ERDF amount to about 65 millions euros, of which 45 financeable as grant and the remaining 20,3 millions through the implementation of financial instruments, it is necessary to specify in the Agreement whether the resources for the financial instrument could be combined with the support in the form of subsidies/ grants in accordance with the procedures set out in Art.37 (paragraph 7,8 and 9) of Reg. 1303 and in accordance with the guidelines published by the Commission in 20157.

7 European Commission (2015), ‘Guidance for Member States on CPR 37_7_8_9 Combination of support from a financial instrument with other forms of support’


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4. Conclusions and lessons learned The definition of the FEM represents an innovative experience in the Marche context, notwithstanding the fact that other initiatives in other European countries have been already developed and simultaneously implemented in other Italian regions. In the 2007-2013 period, financial instruments in the Marche context have been mainly characterised by guarantees and the urban initiative JESSICA had not been launched in 2011. The experience of the MARTE project, also on the basis of the results of the ex-ante assessment, has allowed to:

Prepare a pilot project capable of addressing, as soon as possible, the opportunities and challenges of the financial instruments in the 2014-2020 period;

Provide the technical assistance necessary to examine the period of return of the energy efficiency interventions and to promote the discussion on the involvement of the ESCos in regional projects;

Promote the involvement of partner parties of the project for the definition of the financial instrument, which will benefit of about 1/3 of the resources of the Axis, which be allocated to the financial instrument in accordance with the “sound management” procedures of art.41 of Reg. (EU) 1303/2013;

Examine a series of flexibility mechanisms on the functioning of the fund that can guarantee a greater effectiveness and the achievement of the objectives of Priority Axis 4 of the ROP ERDF;

Stimulate the financial ecosystem through a dedicated path with a view to grasp, through the development and management of the financial instrument FEM, an innovative opportunity in the regional context.

illustration of the structural fund model to set up an ... reports/d4.3... · marte/iee/13/465...

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