Evaluation of financing models for energy-efficiency upgrades of street lighting

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Urban street lighting infrastructure is responsible for about 40 % of the total energy consumption in European cities. Investment in its upgrade offers energy savings of 50-70%; it is also usually very cost-effective and has a payback period of only 3-5 years. In spite of these arguments, a large share of the infrastructure in many European countries requires an upgrade. The budgetary constraint of its owners, who are often municipalities, is a common reason. To overcome it, creative financing models are required to attract private investors and overcome the barrier of high up-front investment costs.

The paper presents the results of a piece of research, which aimed to identify financing models available for energy efficiency upgrades of street lighting and guide municipalities of Central Europe how to make a choice among them. The research represents one of the tasks of the Dynamic Light project, which aims to promote dynamic, intelligent and energy efficient urban lighting and which is supported by the Interreg Central Europe platform.

The paper identifies twenty financing models, falling into the categories of self-financing, debt-financing, third party financing, public-private partnerships, financing by utilities, or by citizens. It evaluates the models using a common framework pointing to model’s advantages and disadvantages from the municipality point of view. The paper further presents a decision-making tree and discusses such key decision factors as availability of public funding, project size and bankability, maturity of the energy service market, municipality’s borrowing capacity, availability of financial instruments from commercial financial institutions, and others. The paper concludes with the key messages of the paper.