EBRD Sustainable Energy Financial Facilities Lessons Learnt From Central and Eastern Europe

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EBRD Sustainable Energy Financial Facilities
Lessons Learnt From Central and Eastern Europe

• London, 6 May 2008

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Outline

• The EBRD Sustainable Energy Initiative (SEI)
• Challenges of the EBRD region
• What we are doing through the SEI
• In the industry sector, through credit lines
• In the municipal sector, through ESCOs
• In the residential sector, working through
  commercial banks
• In Russia, taking an integrated approach to
  residential and public buildings with the GEF and
  the Russian Municipal Housing Reform Fund
• Examples of energy efficiency projects

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The EBRD Sustainable Energy Initiative (SEI)

• The EBRD Region Energy security, economic
  competitiveness and environmental concerns are
  increasing
• 9 EU Member States (BG, CZ, ET, LV, LT, HU, PL,
  RU, SK)
• 6 to 7 Western Balkans EU candidates or
  pre-candidates
• 12 FSU countries, including Russia
• Mongolia
• Aim to double EBRD investments (to 1.5 billion)
  in sustainable energy, 2006-2008. Target exceeded
  in two years 1.65 billion, leveraging 7.8
  billion to end 2007
• Enhanced cooperation with donors and
  international organisations
• Investments in industrial energy efficiency,
  cleaner power supply (including renewable
  energy), infrastructure Carbon finance
• Increasing focus on sustainable energy and
  buildings reflecting international policy
  prioritisation of this sector (EU, IEA), the
  needs of the EBRD region, and EBRD capacity
  finance, expertise, management of grant funds

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Challenges of energy efficiency in the EBRD Region

• Non-incentive legal and regulatory framework
• Bureaucratic public administration procedures
• Subsidised (non cost-reflective) energy prices
  and poor cost allocation mechanisms
• High energy intensity of 2 to 5 times more energy
  intensive than EU average
• Legacy of poor / energy intensive industry and
  construction methods
• Credit-worthiness of stakeholders and
  difficulties with decision making
• Perverse incentives in municipal budgets
• Lack of awareness of benefits of energy savings,
  and behavioural barriers to action
• Low market penetration for high quality energy
  savings and renewable energy technologies
• SMEs incentivised by rapid growth not by
  controlling operating costs of facilities

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SEI targeting industrial sector

• Sustainable energy financing facilities (SEFFs)
• Energy performance contracting and ESCOs
• Direct support direct lending, senior loans,
  syndicate loans, equity and risk guarantees,
  mitigation of legal and political risks
• Policy dialog Memorandum of understanding,
  Sustainable Energy Action Plan, facilitating
  implementation and promotion of EU energy policy
  (EU Directives, technical standards)
• Technical assistance, capacity building,
  awareness raising
• The market is now developing, regulatory
  framework improves and there is a growing
  interest to address energy efficiency.

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Sustainable Energy Financing Facilities (SEFFs)
approach
EBRD
Donor Funded Contract
Donor Funded Contract
Credit Line

Participating Bank
Consultant
Independent Energy Expert
Training And Marketing Support
Technical Assistance Energy Audits eligible
Equipment lists marketing
Implementation Verification

Loan Agreement
Sub-Borrower
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SEFFs through financial intermediaries

• Credit lines through partner banks for on-lending
  to investments in energy efficiency and renewable
  energy in the industrial sector (depends on
  policy objective of donors and stakeholders).
• Donor funded technical assistance from
  specialised consultants to Sub- borrowers and
  Participating Banks
• Incentive payments paid to Participating Banks
  and completion fees paid to Sub-borrowers upon
  successful implementation of eligible investments
• Successful track record in Bulgaria (105 million
  industrial framework 50 million extension in
  the residential sector)
• SEFFs are currently at the implementation stage
  in Ukraine (industry), Georgia (industry and
  residential), Romania (industry) and Slovakia
  (industry and housing associations).
• SEFFs under preparation for Western Balkans,
  Russia and Kazakhstan

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EBRD criteria for direct energy efficiency
support in industry

• Meet strict energy efficiency criteria
  (compliance with ISO, EN standards)
• Environmental compliance
• Bankable and commercial prospects level of
  energy efficiency IRR, NPV required
• Additionally of EBRD involvement
• High transition impact and good replication
  potential
• Integrity and strict money laundering regulations
• Eligible projects power and heat generation,
  manufacturing enterprises, energy transmission
  and generation, tourism and service
  infrastructure, transport sector

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SEI operations targeting municipal sector the
ESCO approach

• Public buildings and municipal infrastructure
  (District Heating, Urban Lighting, Water and
  Waste water facilities)
• Two basic models
• 1 Lending to end user with ESCO guarantee
• 2 ESCO as borrower
• Issues are complexity of EPC, regulatory
  framework, public procurement rules and access of
  ESCOs to financing, especially equity
• EBRD has been at forefront of efforts to create
  ESCO sector in Central and Eastern Europe with
  mixed success.

Source Berliner Energieagentur
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SEI operations targeting municipal buildings
the ESCO approach

• Loan to Bulgarian ESCO Fund will enable the
  Company to finance purchase of receivables under
  energy saving contracts in Bulgaria
• UkrEsco, state-owned ESCO created in 1998 through
  an initiative between Ukraine, EBRD and the EU.
  Not true energy performance contracting payment
  to ESCO akin to a loan
• Dalkia International parent level debt to
  support range of projects focusing on energy
  services management and technical efficiency
• Equity investments in ESCOs with major
  manufacturers
• ESCO model under preparation for Romania, Western
  Balkans, Russia, Kazakhstan
• Local authorities are now increasingly
• focusing their attention on improving services
  and reducing costs
• looking at more sophisticated financing
  techniques to make use of their limited
  resources.
• Aware that buildings with constant and dependable
  energy needs have the ideal characteristics to
  benefit from ESCO services with a guaranteed
  result.

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SEI operations targeting residential buildings
working through SEFF

• Approach based on using EBRD-commercial bank
  relationships to leverage administrative,
  financial and marketing resources of commercial
  bank networks
• In addition to finance, EBRD provides (donor
  funded) technical assistance to market, identify
  and prepare opportunities, define specific
  measures, build capacity in participating banks
  and monitor compliance
• (Donor funded) grant incentives
• Credit lines for residential sector have been
  launched in Bulgaria, Slovakia and are being
  developed in Lithuania, Romania, Ukraine and
  elsewhere
• Aligning incentives for multiple stakeholders is
  key
• Compliance with EU policy (EPBD, EN 13790, )

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SEI operations targeting residential buildings
working through commercial banks

• Three approaches depending on market development
• Phase 1 Individual (retail) lending to
  households for measures at the level of the house
  / apartment within defined eligibility list. (e.g
  Bulgaria www.reecl.org)
• Phase 2 As above but with incentives and
  technical support to promote collectivised
  approaches to multi-apartment buildings (e.g.
  Bulgaria)
• Phase 3 Direct lending to creditworthy housing
  associations or condominia, together with
  technical assistance that supports institutional
  strengthening and implementation of EPBD (e.g.
  Slovakia (www.slovseff.eu), Lithuania)

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SEI operations targeting buildings in Russia an
integrated approach with the GEF

• Public Buildings (e.g. kindergartens, schools,
  hospitals, and public offices) Combining
  technical assistance with financing, EBRD aims to
  help local authorities overcome common obstacles
  to financing energy efficiency
• Increasing awareness and prioritisation of energy
  efficiency gains
• allocation of resources for energy audits and
  project preparation
• tendering procedures
• management of larger-scale programs that may need
  additional dedicated resources.
• Investment barriers addressed through credit for
  municipal EE investments and introduction of the
  sale of receivables as a means of EE financing.
• Construction of municipal mixed ownership
  social housing stock Integration of energy
  efficiency into planning, refurbishment and
  maintenance
• Work to maximize energy and climate benefits of
  the Russian Municipal Housing Reform Fund.
  Energy savings of gt 30 anticipated in each
  project

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Examples of energy efficiency project in
residential buildings the single biggest and
challenging sector

• Insulation of external walls of apartment
  building
• Installation of heat meters and thermostatic
  valves
• Hydraulic balancing of heating system
• Installation of heat cost allocators

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Examples of energy savings measures

• Rehabilitation of DH plants and heat exchanger
  stations
• Automatic equithermic control
• Thermal insulation of pipe networks and use of
  preinsulated pipes
• New PM routines

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Additional value of professional technical
assistance

• Use of high energy efficiency and quality
  material and certified systems
• High energy savings and professional advice on
  most suitable measures
• Qualified assessment of technical options and
  economic profitability
• Introduction of no-cost energy saving habits and
  better public awareness

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Thank you!

• Alexander Hadzhiivanov
• Energy Efficiency Climate Change Team
• European Bank for Reconstruction and Development
• One Exchange Square, London EC2A 2JN
• tel [phone]
• fax [phone]
• e-mail hadzhiia_at_ebrd.com