# Commission Implementing Decision (EU) 2018/210 of 12 February 2018 on the adoption of the LIFE multiannual work programme for 2018-2020 (Text with EEA relevance), Division 5.3.2.3: Structure of the financial instrument

Extent: E+W+S+N.I.

The implementation of the PF4EE instrument is entrusted to the European Investment Bank (EIB) by means of indirect management.
The PF4EE instrument has two core objectives:
to make energy efficiency (EE) lending a more sustainable activity across European financial institutions, incentivising private commercial banks and other financial institutions (both together ‘financial intermediaries’) to address the energy efficiency sector as a distinct market segment, and
to increase the availability of debt financing to projects supporting the energy efficiency priorities of Member States set in the NEEAPs.
The PF4EE instrument provides (i) a risk participation mechanism (Risk Sharing Facility); and (ii) expert support for the financial intermediaries (Expert Support Facility); combined with (iii) EIB long-term funding (EIB Loan for Energy Efficiency).
The PF4EE provides a Risk Sharing Financial Instrument with functioning mechanics comparable to a capped guarantee to share the risk between the Commission (as funder) and financial intermediaries (as lenders).
The Risk Sharing Facility is designed to reduce the credit risk faced by financial intermediaries when lending to the EE sector and to encourage their participation. The impact depends on the market conditions and specific characteristics of the projects. The RS Facility increases lending activity, access to finance and/or better financing conditions to the final recipients, possibly including lower pricing, longer maturities, lower collateral or others.
To leverage the LIFE contribution, EIB loans are provided to financial intermediaries at competitive rates for on-lending. Preferential rates will be passed onto final recipients to encourage take-up;
The recipients are also expected to make a contribution to project costs, which as a result will increase leverage calculated on investment costs;
If a participating financial intermediary has losses in its portfolio of loans (EE loans portfolio), these losses would be partially covered by the Risk Sharing Facility.
LIFE funding would be used to provide the financial contribution required for the risk-sharing facility and expert support facility, as well as the administration and direct costs incurred by EIB for setting up and managing the instrument;
A maximum amount of cash (Collateral) would be allocated to each financial intermediary to offset losses in the EE Loan portfolio. This amount would be calculated based on a specific percentage of the targeted total EE loans portfolio, depending on the risk profile of the targeted final recipients. Should the financial intermediary not reach the targeted portfolio size, the percentage would be applied to the achieved portfolio size.
The target final recipients for the PF4EE instrument comprise SMEs and mid-cap larger companies and private individuals, but could also include small municipalities or other public sector bodies undertaking small energy efficiency investments, capable of using energy savings to repay up-front borrowing
The PF4EE goal over the 2014-2017 period was to sign 10 deals (EIB Loans for EE and Risk Sharing/Expert support Facilities). By the end of 2016, six of them had already been signed (see Section 5.3.2.2).
Over the 2018-2020 period, up to 10 additional deals could be signed, which could bring the total of signed deals to 20 by the end of 2020.
The 2018-2020 EU contribution committed to PF4EE will be EUR 75 million, of which EUR 10 million to be ring-fenced for the Expert Support Facility. Furthermore, the EIB will be allowed to sign more than one deal per Member State.
The selection of financial intermediaries will continue to be driven by demand and in accordance with the principles of sound financial management, transparency, non-discrimination and the fulfilment, inter alia, of the following requirements:
(i) to be private sector financial institution or to operate in the market in a comparable manner to a private sector financial institution;
(ii) to commit and demonstrate operational capacity to distribute the PF4EE instrument;
(iii) to demonstrate capacity to reach final recipients targeted by the relevant NEEAP priority and/or energy efficiency support scheme and/or EU Directives relating to energy efficiency within the MS concerned;
(iv) to undertake the obligations and requirements associated with the distribution of the PF4EE instrument;
(v) to comply with relevant standards and applicable legislation on the prevention of money laundering, fight against terrorism and tax fraud;
(vi) to provide information required by the European Court of Auditors to allow the discharge of its duties; and
(vii) to be acceptable as a counterparty to the EIB in accordance with its internal policies and guidelines and consistent with the geographical distribution conditions set by PF4EE.
A broad geographical distribution of the financial instrument over the lifetime of the programme will be sought by providing incentives to the EIB to encourage the participation of financial intermediaries across all Member States. However, the geographical limitations of the pilot phase will be removed and the EIB will be allowed to sign more than one deal per Member State, depending on market requirements.
Depending on interest expressed by financial intermediaries, the EIB may prioritise those financial intermediaries seeking to operate in a Member States where the investment needs (distance to target) are greatest. The Risk Sharing Facility will incentivise financial intermediaries to operate in Member States with higher risks reflecting, for example, significant under-development in the use of loan finance for EE or where the capacity to take-up loans is deemed likely to be especially low.
Experience gained over the 2014-2017 period indicates that technical assistance to financial intermediaries is crucial to maximise their ability to target EE investments. Consequently, the maximum budget of the Expert Support Facility will be increased from the EUR 3,2 million of the 2014-2017 period (i.e. 4 % of the EU PF4EE contribution committed during the first part of the pilot phase) to EUR 10 million over the 2018-2020 period.
The PF4EE needs to be operational for as long as underlying loans covered by the RS Facility remain outstanding. Maximum tenor to be allowed under the RS Facility will be 20 years. Therefore the PF4EE will be in place for up to 20 years after the end of the implementation period (2045).
The allocation of funds will be valid until the last of the transactions under the programme is fully completed.
The management of the financial instrument is carried out by the EIB. A Steering Committee reviews, on a regular basis, the progress on the implementation of the Financial Instrument. The Steering Committee comprises appointments made jointly by the Commission, including line Commission services such as DG CLIMA, DG ECFIN and DG ENER, and the EIB, supported by a secretariat provided by EIB.
A monitoring and reporting mechanism was set up and the information is shared with the LIFE Committee.
Monitoring of the financial instruments will be in line with the requirements laid down in the Financial Regulation (Article 140) and the Delegated Regulation (Article 225) and subsequently as interpreted in the Financial and Administrative Framework Agreement (FAFA) with EIB and consequent Delegation Agreement.
The EIB would be responsible for monitoring the implementation of activities under the financial instrument and for producing performance and financial reports in accordance with a format, content and periodicity to be agreed, to include regular and ad hoc reports; site visits; audits. EE Performance Indicators for reporting from financial institutions to EIB would be used.

---
Source: https://www.legislation.gov.uk/eudn/2018/210/annex/division/5/division/5.3/division/5.3.2/division/5.3.2.3 (the official version)
Page: https://openlegislation.uk/eu-decision-2018-210/annex/division-5/division-5.3/division-5.3.2/division-5.3.2.3
Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.