September 16, 2014
Profitability and sustainability go hand in hand with the Amsterdam Investment Fund; a network of financing tools that is propelling the city towards energy transition.
Four years ago, Amsterdam chose to sell its shares in NUON, a former local utility company. Its next move would change the future of the city and produce a paradigm-shifting contribution to European sustainability efforts. The city dedicated €75 million of the NUON sale earnings to perpetuating a cycle of lowering CO2 and increasing energy efficiency. To do so it devised a powerful financing instrument – the Amsterdam Investment Fund (AIF).
The Amsterdam Energy Strategy
The realities of climate change and resource depletion are an immediate concern for the Netherlands. The country is at high risk from floods resulting from global warming, and natural gas resources are expected to expire in approximately ten years. The Netherlands is facing these challenges head-on with a plan that places the capital at the centre of rapid energy transition for the whole country. The Amsterdam Energy Strategy 2040 is an ambitious, realistic and absolutely necessary plan to achieve a 40% reduction in CO2 emissions between 1990 and 2025, a 75% reduction by 2040, and ultimate independence from fossil fuels. According to this strategy, Amsterdam must strive to make the city sustainable in every way – it must become financially sustainable as well as energy independent. This will ‘require new forms of cooperation.’
‘If we want to achieve our goal,’ says AIF founding fund manager, Maarten van Casteren, ‘We need to mobilise the whole city.’ This year, the fund has won a place among finalists for the City Climate Leadership Award for its role in generating the contribution of citizens, building owners, housing corporations, schools and SMEs in this drive towards sustainability.
Multiplication through know-how
‘When we established the fund a lot was already happening in the city without government involvement,’ says Casteren, ‘but they had trouble getting started. Residents were more focussed on lowering their energy bills, but funding was not available from the market.’
Lack of initial cash-flow is often a key barrier to sustainable initiatives seeking bank loans or investments. ‘The AIF helps them with technical knowledge and funding from the very early stage,’ explains Casteren. The fund does not offer subsidies, but soft loans and equity deals for viable projects. The loans can be repaid through the savings or profits generated by increased energy efficiency. The technical and economic feasibility of projects is ensured before the loans are made, thus making AIF-approved projects more attractive to other investors.
Built to last
The structure of the AIF is characterised by a rigorous rating system based on economic returns as well as qualitative assessment criteria: innovation, duplication, diversification and visibility. Its success in generating both sustainable energy solutions and a healthy fund lies in the complex interaction of different financing strategies aimed at different target groups. The fund dedicates 20% to social returns, and 80% to commercial ones. Large scale, high-interest commercial investments generate the profit to fund smaller scale social investments with low or zero interest rates. All projects require a minimum outcome of at least 45kg of CO2 savings per project euro invested and commercial investments require a minimal return of 7.5% per annum so that the sum can be reinvested. ‘The fund has to revolve,’ explains Casteren, ‘because it must stay intact over several years.’
Mobilising the city
‘The public response to the fund has been very good,’ says Casteren, ‘We invested a total of EUR 22 million in less than a year for over 40 projects, varying from large scale commercial projects to solar panels for a sports club.’ All of these projects are led by citizens wanting to contribute to an energy efficient future.
New business models
Earlier this year, the AIF-funded Rockstart Smart Energy Programme received applications from start-ups in 39 different countries looking for support to get their ideas off the ground. Based on energy-efficiency potential and economic viability, ten of these companies were chosen and invited to Amsterdam to receive all the support that the programme could offer them. As well as a cash investment of €20,000, the young entrepreneurs were provided with office, legal and fiscal support, intensive coaching from 80 different mentors, and the opportunity to pitch their business in front of over 200 investors. In return for all of this, the fund owns an 8% share in each business.
Ideas range from simple but effective energy-awareness solutions like TheCityGame andGive O2 – apps designed to motivate and spread sustainable behaviour – to ambitious platforms like We Share Solar, which sets out to create a solar energy revolution.
Care to save wants to change attitudes to energy by educating the next generation, ‘often it is they who educate parents,’ says founder, Andrily Shmyhelskyy. But great intentions alone would not create a viable business. That is where Rockstart came in, ‘The mentoring helped us a lot to understand how the market works and how to manufacture this product. The programme allowed us to assess the market and learn how to develop our business.’
‘Accelerating start-ups is key to the global energy transition,’ says Marcel Peters, CEO and founder of another chosen business, Bundles, ‘It is of course mostly about technological innovations, but without changing business models the adoption of these technologies will not prosper. Creating a new business model is 1000 times easier for a start-up than for an existing company…’
After the huge success of this first edition, the 2015 Rockstart Acceleration Programme is already underway, with applications flooding in from all over the world.
Last October, the AIF used €45 million to create The Amsterdam Climate and Energy Fund (AKEF). The fund is dedicated to commercial projects with commercial interest rates. The Energy Research Centre of the Netherlands (ECN) helps to evaluate investment applications in terms of sustainability, energy conservation and technical feasibility, and all investments must actively lower CO 2 emissions. E3 , a consortium of business, climate and energy experts, ensures financial returns in line with the prevailing market, and manages the fund according to the mandate of the AIF. ‘This allows them to act swiftly and smoothly in the market place,’ explains Casteren, ‘operating under investment rules, and taking business decisions without political influence.’
In its first year, AKEF has helped to bring about OrangeGas gas stations, where vehicles can be refuelled using gas made from biological waste and sewage sludge. By providing the Ajax Football Stadium with an initial investment of 1.6 million, AKEF is also behind the installation of a 4,200 solar panels on the roof of the stadium, bringing the Amsterdam Arena closer to the goals of its exciting sustainability project, Amsterdam ArenA. Naturally sustainable. It is not only the profits of this investment that will lead to changes in Amsterdam; the high-visibility solar roof has provoked competition with other buildings vying for the title of largest solar roof in the city, thus fuelling the sustainability drive in the city.
Braving the future
Already the AIF has a direct impact on global energy transition, actively sharing information and best practices with other global cities through its participation in the C40 Sustainable Infrastructure Finance Network. ‘There is a change in approaching sustainable projects from a business perspective,’ says Casteren. Revolving loans are keeping the wheels turning for perpetual energy improvements in Amsterdam, and the approach may have the potential to accelerate the energy transition elsewhere in Europe in preparation for 2020.
Next year holds exciting and challenging developments for the city: only climate-neutral buildings will be constructed from 2015; electric transport will be further increased to 40,000 electric vehicles; and the city aims to make solar energy cost-effective for businesses. These changes will require the support of businesses and citizens, innovative technology and the clever use of funds, and the Amsterdam Investment Fund is there to help it happen.
Read more about the Amsterdam Climate and Energy Fund
Read more about the role of the ECN in the fund
Click here to view last year’s exciting Rockstart demo day!Clare Taylor