1. Bank aus Verantwortung Financing of the German Energy Turnaround BSPC-Working Group on „Green Growth and Energy Efficiency“ Berlin, 12th of October 2012 Olaf Weber, KfW

2. 2 German Energy Turnaround / 12/10/12 Covered issues 1A brief view on KfW 2Huge investment needs for the German energy turnaround 3Which sources are available to finance the German energy turnaround? 4Good practise in promoting energy efficiency by KfW 5Lessons learnt

3. 3 German Energy Turnaround / 12/10/12 KfW: more than 60 years promotional bank of the Federal Republic of Germany › Shareholders: 80% Federal Republic 0f Germany, 20% all federal states › Founded in 1948 › Headquarters: Frankfurt am Main › Branches: Berlin, Bonn and Cologne › Representative offices: around 70 offices and representations worldwide › Balance sheet total at end 2011: EUR 494.8 billion › Financing volume 2011: EUR 70.4 billion › Around 4,763 employees (2011) › Best rating: AAA/Aaa/AAA › Global Finance Magazine: KfW in 2012 „Safest Bank of the World“

4. 4 German Energy Turnaround / 12/10/12 House – bank - principle in Germany No branch network of our own File loan application with their regular bank before start of investment Enter into the loan agreement and disburse the loan If approved, customer‘s bank forwards application to KfW Refinances the loan at favourable refinancing interest rates Customer's bank Customer

5. 5 German Energy Turnaround / 12/10/12 A bank with a wide array of functions We promote development Promotion of developing and transition countries International business We promote Germany Promotion construction of new housing and modernisation as well as education Promotion SMEs, as well as renewables, energy efficiency, innovation Promotion of municipal projects Domestic promotion We ensure internationalisation International project and export finance Promotion of environmental and climate protection Business area Mittelstandsbank Business area Privatkundenbank Business area Kommunalbank Business area Export and Project Finance Business area Promotion of Developing and Transition Countries

6. 6 German Energy Turnaround / 12/10/12 Promoting sustainable projects Particular support is given to projects which make a positive contribution to sustainability goals. Co-financing is only provided for projects whose impacts on the environment and social conditions are manageable. Investing money sustainably Own funds and investments are responsibly invested under sustainability aspects. Sustainable business operations High standards and goals for environmental protection in our own buildings; remaining emissions rendered CO2 neutral through compensation projects in developing countries. http://nachhaltigkeit.kfw.de/ Bank aus Verantwortung How is KfW translating responsible banking ?

7. 7 German Energy Turnaround / 12/10/12 The German Energy Turnaround Ambitious challenges ahead Annual investment required in Germany until 2020: at least EUR 27 bn.

8. 8 German Energy Turnaround / 12/10/12 Priority to Renewable Energies ● Increasing the share of renewables in gross final energy consumption up to 60 % (2010: 11 %) ● Increasing the share of renewables in the gross electricity consumption up to 80 % (2010: 17 %) ● Massive uncoordinated expansion of solar and wind energy generation; delays offshore ● Additional fossil power plants for reserve capacity ● EU-ETS with week incentive effects ● Securing supply of „critical raw materials“ ● Participation of affected citizens and municipalities ● EUR 135 bn. until 2020 INVESTMENTS CHALLENGES GOALS

9. 9 German Energy Turnaround / 12/10/12 Urgently Needed:Power Grids and Storage Capacity ● Integration of renewable energy into existing power generation infrastructure ● Innovation in storage technologies and smart grids ● Massive expansion of grids (under stress) and storage capacities (scarce) ● Provision of sufficient long-term financial funds required to avoid a slowdown in investment ● Promotion of research & development, promotion and rapid approval of best practice projects ● Securing supply of „critical raw materials“ ● Acceleration of planning- and approval procedures ● Participation of affected citizens and municipalities ● Up to EUR 90 bn. until 2030 INVESTMENTS CHALLENGES GOALS

10. 10 German Energy Turnaround / 12/10/12 Inevitable but neglected: Fostering Energy Efficiency ● Reduction of primary energy consumption by 50% ● Reduction of electricity consumption by 25% ● Increasing energy productivity by 2.1% p.a. ● Almost 100% decarbonisation of production, consumption and mobility required: ● Financial incentives ● Information and consulting for households and companies. ● Waking up the sleeping giant by fostering energy efficiency in the building and heat sector ● Adjustment of energy demand through extended usage of smart metering ● Up to EUR 23 bn. until 2020 (for reduced electricity consumption and increased use of renewables for heat production) INVESTMENTS CHALLENGES GOALS

11. 11 German Energy Turnaround / 12/10/12 Composition of electricity price for German households K

12. 12 German Energy Turnaround / 12/10/12 Sources to finance the energy turnaround I Electricity tariffs › German industry pays the second highest electricity tariffs among the „industrialized“ states in Europe with 6-12 ct/kWh › Due to intensive competition no further state induced increase of taxes or contributions for the energy turnaround is possible › Quite the contrary: there are a lot of exemptions to energy taxes for energy intensive companies Industry › Consume only a quarter of the whole electricity consumption › Energy taxes and contributions raised at 126% since 1998, while costs for generation, transport and distribution decreased at 9% › Yellow press: „Does the Energiewende impowerish us?“ › Average tariff now 25 ct/kWh Households › The strategy to let pay mainly private households and companies with a relativly low electricity demand for the energy turnaround isn´t further overall accepted; e.g. actual increase of the contribution for renewable electricity which will rise from 3.6 ct/kWh to 5,3 ct/kWh next year › On the other hand high elictricity prices are an incentive to save energy and vice versa

13. 13 German Energy Turnaround / 12/10/12 Sources to finance the energy turnaround II Federal budget › To stabilize the EURO it is absolutly necessary to reduce debt in the federal budget. Nevertheless there is still a large stream of state money e.g. for R&D. Although the above mentioned exemptions or reductions of taxes or contributions are state aid. Break on debt › To increase the transparency of state expenditure for the energy turnaround the government established an energy and Climate Funds. The fund should obtain its money from selling certificates for emission rights in the framework of the European Emission Trade System. Yearly funds-revenues should raise from 2.18 bn € in 2013 to 2.6 bn € in 2016. Energy and climate Funds (EKF) › There is a certain over- lapping. The German electricity tax is already a component of the electricity price, even VAT. › EKF calculates with an average certificate price of 10 €/t CO2-emission in 2013. The current carbon market pays only 7 €/t. › State aid must be conform to EU competition law. › One state intervention results in another.

14. 14 German Energy Turnaround / 12/10/12 Sources to finance the energy turnaround III KfW Triple-A-Rating of KfW bonds KfW reduces interest rates by ist own earnings additionally › KfW's rating results mainly from the very good credit quality and the explicit, direct guarantee of the Federal Republic of Germany. Thus securities from KfW are just as safe as German government bonds Our clients profit from KfW´s extraordinary favourable funding („Flight to quality“). › Particulary in our energy efficiency programmes we offer „signal interest rates“ up from 1%

15. 15 German Energy Turnaround / 12/10/12 KfW action plan „Energiewende“ › Construction of new energy-efficient homes and the energy-efficient refurbishment of older residential buildings › Energy efficiency in corperates › Municipal efficient energy supply, energy- efficient urban lighting, energy-efficient refurbishment of municipal non-residential buildings, integrated energy neighbourhood concepts and refurbishment manager Boosting already existing programmes › KfW Programme Offshore Wind Energy for the establishment of 10 wind farms off the German North and Baltic Sea coasts › KfW Energy Turnaround Financing Initiative. Direct loans for large commercial German and foreign enterprises and large-scale investment projects in the areas of energy efficiency, innovative projects in the areas of energy saving, energy generation, storage and transmission as well as the use of renewable energies. Creating new programmes

16. 16 German Energy Turnaround / 12/10/12 Initiative: Energy efficiency in SMEs Federal Department of Commerce and KfW Loans at low interest rates Grants for advice

17. 17 German Energy Turnaround / 12/10/12 Grants for advice on energy efficiency Detailed advice Initial advice 60% grant Up to 1.600 EUR consulting fee Precise energy saving concept 80% grant Up to 8.000 EUR consulting fee Searching energy saving potentials Application through local partners (e.g. chambers of commerce or energie agencies)

18. 18 German Energy Turnaround / 12/10/12 KfW energy efficiency programm for private corperates / contractors and free lancers Energy efficient modernisation of the production system incl. ancillary units Energy efficient cogeneration of heat and power Energy efficient construction and rehabilitation of commercial buildings Planning and professional supervision by technical experts Implementation of an energy management system Brownfield investments: energy savings must be at least 20% compared to the average consumption of the last three years Greenfield investments energy savings of no less than 15% required compared to the average of the respective industry

19. 19 German Energy Turnaround / 12/10/12 Terms of KfW energy efficiency programm Financing up to100% of costs Risk adjusted interest rates Backed by normal banking securities Grace period up to 3 years Fixed interest rates and loan duration up to 20 years Up to 25 mn EUR credit amount Our current offer for a duration and a fixed interest rate of 5 Years: starting with 1 % effective yield p.a.

20. 20 German Energy Turnaround / 12/10/12 EU-directive on energy efficiency Reduction target › The conclusions of the European Council of 4 February 2011 emphasised that the 2020 20 % energy efficiency target as agreed by the June 2010 European Council, which is presently not on track, must be delivered. Projections made in 2007 showed a primary energy consumption in 2020 of 1842 Mtoe. A 20 % reduction results in 1474 Mtoe in 2020, i.e. a reduction of 368 Mtoe as compared to projections.(Preliminary note, No. 2) › Each Member State shall set an indicative national energy efficiency target, based on either primary or final energy consumption, primary or final energy savings, or energy intensity. Member States shall notify those targets to the Commission in accordance with Article 24(1) and Annex XIV Part 1. When doing so, they shall also express those targets in terms of an absolute level of primary energy consumption and final energy consumption in 2020 and shall explain how, and on the basis of which data, this has been calculated. (Article 3, Energy efficiency targets, No.1)

21. Energy Consumption (kWh) Consumption level before the project Absolute savings Specific savings Production (units or EUR) Trendline 1: Situation before project Trendline 2: Situation after project Absolute and specific energy savings

22. 22 German Energy Turnaround / 12/10/12 Example supermarket KfW - energy efficiency programm Supermarket: Modernisation of heating, air conditioning, cooling system und control technique Investment: 390.000 EUR Requirement for KfW- eligible brownfield investments: 20 % energy saving compared to the average consumption of the last three years Confirmed energy savings by the energy adviser: 389 MWh respectively 33% avoided CO 2 : 78 t /a

23. 23 German Energy Turnaround / 12/10/12 Track record of the KfW energy efficiency programm 854 projects 476 mn EUR 1.163 projects 676 mn EUR 4.748 Consulting services in 2010 5.400 Consulting services in 2011  Huge potential: 3.5 mn SMEs in Germany 20092010 1.710 projects 1.951 mn EUR* 2011 *including none-SMEs

24. 24 German Energy Turnaround / 12/10/12 KfW as a trendsetter: „KfW-Effizienzhaus“ › Energy standards are laid out in the Energy Conservation Ordinance (Energiesparverordnung/EnEV). › The label „efficient KfW-home“ refers to this Energy Conservation Ordinance › „KfW Effizienzhaus 85“ means that the building will consume 15% less energy than this ordinance demands › Higher incentives for achieving higher energy standards (1% interest rate in general, but different repayment boni up to 12,5 % Energetic refurbishment is a crucial component of the German energy concept › roundabout 39 Mio. flats still need to be energetically renovated, hereof 24 Mio. in a comprehensive way › The average efficiency of these buildings is three times worser than the recent standard for new buildings KfW-promotion of energetic refurbishment in residential buildings KfW-EH 40 Refurbishment KfW-EH 100 KfW-EH 115 KfW-EH 70 KfW-EH 85 KfW-EH 55 KfW-EH Denkmal New building EnEV: 100

25. 25 German Energy Turnaround / 12/10/12 KfW’s contribution in 2011 to energy saving, jobs, the national budget and climate protection Example: KfW programmes for “Energy efficient construction and rehabilitation“ 1 EUR of public money triggering 12 EUR in private investments (1,5 to 18,3 bn €) Reducing GHG emissions by 0.6 m tCO2 › Extrapolated energy savings over the average useful lifetime of the buildings promoted in 2011 are 1.550 GWh › Discounted present value of energy savings of the buildings promoted in 2011 is about 4,165 bn € › Evaluated by IWU, Darmstadt, and BEI, Bremen Direct tax return flow= 2,9 bn € Securing 246,900 jobs for one year

26. 26 German Energy Turnaround / 12/10/12 Technical know how complements our financal know how KfW disposes of own technical experts in the field of energy the Federal Republic of Germany and KfW once founded the German Energy Agency (dena) dena provides technical and related economic know how to the German public KfW also takes a share in the Berliner Energieagentur, one of more than 30 regional energy agencies in Germany. Please have a look to the Energy saving partnership in Berlin: http://www.berliner-e-agentur.de/en/projects/energy-saving-partnerships-berlin

27. 27 German Energy Turnaround / 12/10/12 How to conduct successfully an energy turnaround? Some key factors from the perspective of a promotional bank  Stakeholders lack technical and economic information which e.g. energy agencies can provide  Energy turnaround needs mainly long term investments thus there is a necessity to provide favourable long-term financing  Target groups need tailor made promotion  Give absolute priority to energy efficiency and R&D (no regret policy)  Standards facilitate orientation  Try to measure the output of activities (EU-Directive)

28. 28 German Energy Turnaround / 12/10/12 28 Further Information about KfW-promotion of renewable energies and contact data Olaf Weber KfW Bankengruppe DirectorPalmengartenstraße 5–9 KfW Bankengruppe60325 Frankfurt am Main Germany Fon +49 69 7431 7398 Fax +49 69 7431 3582 olaf.weber@kfw.de http://www.kfw.de Further information Contact

29. Bank aus Verantwortung Thank you for your attention!