Ghent

Instrument Overview Crowdinvesting that collects mezzanine or loans from a “crowd” of retail investors, usually via an online platform. Unlike crowd-donation, crowdinvesting collects funds from retail investors who can expect a return on their investment. Hence, it is a type of loan product, where interest needs to be paid. Thus, it is based on lending or reward-based models and investors can freely pledge their capital to projects they wish to support. In principle any project that can raise enough attractiveness can be crowdfunded. The municipalities benefit from community participation, can freely decide on the return on investments and split their finance in regular ways of funding and crowdinvesting. However, the municipality owes responsibility to a large number of small investors and runs the risk that the investors do not stick throughout the funding phase. This type of financing instruments is best suited for small scale investments [1].   Why it matters for cities [2] Crowdinvesting has potential to unlock access to finance barriers for young businesses and start ups, thereby helping cities to grow jobs and increase competitiveness. Crowdinvesting can help communities to come together to invest in their own spaces and places and / or to improve the environment where they live. Some cities are developing their own crowdinvesting platform at city level (or at another geographical level). These bring together different funders and city stakeholders to create a dedicated platform tailored to the local context and often 'match' funding raised.   Key features Risk Profile: Suits high-risk, early-stage or community-backed projects. Maturity: Ideal for pilots, demos, or gaps in traditional funding. Repayment Terms: Donation = no return Lending = fixed repayment Equity = shared returns Scalability: Small-scale, replicable; works well with other funding.   How It Works  Crowdinvesting is where a project is financed by raising funds from a large number of people, typically via the internet. There are 3 main types of crowdinvesting [2]: Equity based crowdinvesting - the sale of a stake in a business to a number of investors in return for investment Loan or debt based crowdinvesting - funds are borrowed from lots of people online rather than from a bank Rewards based crowdinvesting - Individuals donate towards a specific project with the expectation of receiving a tangible (non–financial) reward or product at a later date in exchange for their contribution   As well as raising funds, this approach is seen as helping to validate an idea or project and generate enthusiasm amongst the 'crowd' creating valuable advocates and project champions [2].   Benefits & Challenges for Cities [3] Benefits Crowdinvesting can help finance climate-related projects that may be important to a local community but are not attractive to commercial investors due to their small volume. Crowdinvesting for climate finance also can help ‘democratise’ climate financing by increasing awareness and encouraging public participation. Challenges Project ownership and continued responsibility for maintenance of a funded asset must be addressed from the outset.   Use Cases Ghent crowdfunding platform realising climate change adaptation through urban greening, Belgium [4] Ghent aims at realizing more green areas in response to climate change and actively seeks citizen involvement to achieve this. This is in line with the city being very social and creative with many citizens actively developing bottom-up initiatives. Many of these small-scale projects however have difficulty developing into a successful project through the available financing mechanisms. Therefore, Ghent has developed a crowdfunding platform that allows citizens to propose and finance their ideas for the city. Two projects addressing climate adaptation have been successfully realized with support of the crowdfunding.gent platform: one project encouraging urban farming and the other one realising edible streets. Although  the crowdfunding platform gradually evolved over time towards mainly funding socio-cultural initiatives, it has the potential to be an excellent instrument to realise small projects of climate adaptation that have the opportunity to generate larger ripple effects.   When to Use It Due to its limited scale and the need to be quite specific in relation to the scope and funding targets, crowdinvesting sources usually finance certain elements of an infrastructure project, such as small-scale feasibility studies, a water supply for a specific small community, or closing a financing gap that would otherwise prevent the realisation of a project (“last-mile” finance). Crowdinvesting can also be used as a debt instrument through the form of mini-bonds, where pooled contributions can be structured effectively as a bond and can provide potential return on crowdsourced investments [3][5].   References [1] Novikova, A., Stelmakh, K., Hessling, M., Emmrich, J., and Stamo, I. 2017. Guideline on finding a suitable financing model for public lighting investment: Deliverable D.T2.3.3 Best practice guide. Report of the EU-funded project “INTERREG Central Europe CE452 Dynamic Light”, October 2017.  [2] https://urbact.eu/articles/crowdfunding-city-futures [3] https://citiesclimatefinance.org/financial-instruments/instruments/crowdfunding [4] https://climate-adapt.eea.europa.eu/en/metadata/case-studies/ghent-crowdfunding-platform-realising-climate-change-adaptation-through-urban-greening [5] EDsd35B78syp19aUcji1Rz37HKMHpsVaNrMODbgy.pdf   Back to Finance Resource

Instrument Overview A power purchase agreement (PPA) is generally the primary contract between a purchasing entity and a project developer/producer of electricity. These typically are a government agency and a private utility or an independent power producer underpinning a power sector PPP. This contract specifies the volume and price of the energy purchased and the duration of the agreement. A PPA is an example of "third-party" ownership. The government agency becomes the sole client of the private energy company, but there is often a separate investor to act as the system owner or project sponsor [1].   Why it matters for cities PPAs can be useful to increase the amount of renewable power installed in municipalities’ territory or surrounding areas. Because of their considerable energy needs, cities have the power to increase the amount of renewable energy fed into the grid by giving project developers the necessary revenue stability to invest with confidence [2].   Key features Ideally, a renewables PPA can be complementary to locally-owned installations (owned directly or via a municipal energy company), but in certain cases it could be the only option for local governments who can’t afford their own renewable energy production facilities or lack the staff capacities & knowledge to establish partnerships with their citizens. A developer can decide to provide the capital for the installation if they have the financial security of a long-term contract for the generation [2]. Usually long-term contracts (up to 20 years): PPAs are commonly long-term agreement with durations of 10-20 years; however, there is more and more short-term contracts Fixed pricing structures/indications: prices are usually fixed and pre-agreed offering long planning horizons (sometimes prices are indexed to inflation depending on the contractual structures) Large scale energy projects Extensive tendering/upfront process since municipalities need to develop deep knowledge of the energy market, regulatory framework and legal aspects as well as having the administrative capacities and expertise that is required to enter such contracts. Complex risk structure - The credit, supply risk, construction risk  Flexible contract structures (direct, physical or virtual): Project parties can agree for the electricity directly provided to the customer at an agreed price without intermediaries (direct); the electricity can be received via the grid at an agreed price (physical); the producer of electricity gets compensated once the price drops below an agreed price level, or in turn compensates the buyer once the price rise above the agreed price level, yet there is no physical delivery to the grid (virtual) since the producer sells the electricity to the market   How It Works Steps to PPAs for clean energy in municipalities [2]: Decide on which goals PPAs should contribute to Sustainability: contribute to municipal climate targets, by reducing greenhouse gas emissions, water and air pollution associated with electricity consumption. Can include improving energy performance certificate (EPC) score of municipal buildings, in which case RES production needs to be local, and definition of local needs to checked. Financial: help keep the town’s budget under control, through energy cost savings and predictable price evolution over a longer period. Social: broader local benefits for citizens, workers and businesses. Foster participation in RES projects, alleviate energy poverty, create employment or innovation opportunities. Assess the municipalities’ energy picture Electricity consumption and profile: how much in total, and when, as detailed as you can: which months, time of day. Seek assistance from local energy experts, the current energy supplier and grid company if needed. Scope potential projects in development in the area that could be interested in making an offer. Investigate potential for new solar and wind projects in the municipality on public and private roofs and land. Scope public participation potential in the area: cooperative developers, energy communities, active groups of citizens, interested social housing or school communities. Scope neighbouring municipalities going through a similar exercise that could be interested in joining forces. Rules and contracts Investigate appropriate general PPA structure (direct line, physical, virtual). Compare third party-owned renewables (often solar) and lease agreements for wind or solar on municipal properties. Engage specialised legal advice. Template contracts can be helpful. Investigate applicable public procurement rules to prepare tender for projects, involving energy communities if desired. Pool demand with other municipalities if possible for benefits of scale. Be careful when setting the tender criteria, don’t make them too complicated but consider the objectives you want to achieve and the companies (or communities) already active in your area. No need to go big if it’s the first time. For example, by keeping the volume of electricity you will purchase via the PPA rather low, you can simplify the management of the contract and reduce risks.   Benefits & Challenges for Cities [1] Benefits PPAs lock in long-term pricing for electricity, helping to manage the risk of volatile power markets. PPAs reduce investment costs associated with planning or operating renewable energy plants. Challenges There is a wide range of challenges in implementing and connecting independent power plants, such as supply risks associated with the availability of solar and wind, including connecting fluctuating energy sources to the grid and deciding who should bear the costs of any curtailment (the act of reducing or restricting energy delivery from a generator to the electrical grid).   Use Cases Ghent’s Virtual PPA with Beauvent Energy Cooperative [2] To meet its goal of sourcing at least 30% of public building electricity from local renewables, the city of Ghent pursued a virtual Power Purchase Agreement (PPA), as rooftop space was insufficient to install the necessary capacity. With support from Vlaams Energiebedrijf (VEB), Ghent set minimum requirements for the bid: they wanted a virtual PPA for RE, to deliver a minimum volume of 500 MWh/year, to start at the latest 10 months after the closing of the contract and for a period between 1 and 15 years with at least half of the production facility to be owned by a citizen energy community. Flemish cooperative Beauvent won the bid, partnering with timber company Lemahieu to use its warehouse roofs for a 7.9 MW solar installation - 20% of Ghent’s public electricity use. The contract was signed in December 2021, supported by VEB and legal advisors. Completed in January 2023, the project - Ghent’s third-largest renewable installation – enabled 2.5 million euros in investment from the cooperative (incl. 700,000 euros in citizen investment, who became members of Beauvent) thanks to the long-term financial earnings ensured by the PPA. This provided the city with local green energy access, local ownership, and progress toward climate goals Ghent’s success factors : A team dedicated to public building decarbonisation Strong support at political level Access to legal and financial expertise at an affordable price   When to Use It Appropriate energy market regulation must be in place, including feed-in-tariffs (a policy mechanism that guarantees renewable energy producers a fixed price for the electricity they feed into the grid over a set period) and regulation allowing municipalities entering into long-term agreements [1].   References [1] https://citiesclimatefinance.org/financial-instruments/instruments/power_purchase_agreements_ppa_for_clean_energy [2] PPAs-Briefing_Energy-Cities_RAP.pdf   Back to Finance Resource

NEUTRALPATH has produced a series of case studies to showcase the ambitious goals set by cities to achieve climate neutrality and provide a more sustainable future for their citizens. At the local level, Positive and Clean Energy Districts (PCEDs) are playing a key role in the energy transition and contributing to the achievement of the zero emissions targets.

Case Study on streets converting into seasonal socialising spaces