Building Energy Efficiency - Building Energy Efficiency - challenges and opportunities for challenges and opportunities for

EBRDEBRD

Peter Hobson

European Bank for Reconstruction and Development

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Outline

• EBRD Sustainable Energy Initiative

• Sustainable energy financing in the building sector - constrains and opportunities

• Bank’s operations in the sector

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EBRD Sustainable Energy Initiative (SEI) Overview

• Scale up EBRD sustainable energy investments to €1.5 billion• Strengthen the EBRD capacity to scale up delivery and “mainstream” climate and energy

efficiency across the Bank’s operations • Expand the market for sustainable energy technologies in the region

SEI Phase 2 Targets (2009 – 2011)

▪ EBRD SEI financing: €3 to 5 billion (total project value of €9 to15 billion)

▪ Carbon emissions reduction: 25 to 35 million tonnes CO2/annum

▪ TA grant funding mobilisation: €100 million , Investment grants – €250 million

The SEI responds to the specific needs of the energy transition in the EBRD region, as well as to the call of the G8 at the 2005 Gleneagles Summit for the IFIs to scale-up climate change mitigation investment.

SEI Phase 1 (2006-2008) was launched in May 2006 with the objectives to:

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1. Industrial Energy Efficiency

4. Renewable Energy Scale-up

2. Sustainable Energy Financing Facilities

5. Municipal Infrastructure Energy Efficiency

3. Power Sector Energy Efficiency

6. Carbon Markets Development

SEI Results

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SEI Results 2006- 2010 (YTD):

– EBRD SEI investments of € 4.6 billion for total project value of over € 23 billion

– Investments in 266 projects and 27 countries – EBRD SEI financing account on average for 20% of the Bank’s total investment – Annual emission reduction of 29 million tons of CO2

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Buildings – the largest and the most cost effective carbon abatement opportunities

SOURCE: 1- McKinsey Global Institute, 2007

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Buildings – how the Bank responds?

• Building EE as one of new priority areas under SEI- Phase 2;

• High level support;

• Financing models available;

Low carbon costs (<EUR 20/t) annual capital demands, EUR billion

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• Technical assistance: professional consultants, training and capacity building TCs, dedicated marketing;

• Maintaining Policy Dialogue (policy&regulatory barriers);

• Low energy properties financed – a driver toward capacity building and expanding market for EE techniques;

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Barriers to sustainable energy financing for banksBarriers to sustainable energy financing for banks

Similar in all the countries in the region:

▪ Uncertainties about market demand for EE financing

▪ High transaction costs

▪ Liability of stakeholders

▪ Legal enforcement in the property and residential sector

▪ Lack of technical expertise for appraisal and risk assessment

▪ Information asymmetries and misconceptions about the technical risks and

financial benefits of energy efficiency

▪ Lack of specific structures for implementation

▪ No specific marketing tools or budget allocated for such activities

▪ Tenors needed longer than those of commercial business lending

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Institutional and regulatory barriersInstitutional and regulatory barriers

• Insufficiencies of housing legislation:

▪ Legal statute of associations of apartment owners;

▪ Responsibilities and legal liabilities of Associations;

▪ Management of Associations

▪ Decision making procedures

▪ Relationship with management companies and utilities

• Insufficiencies of building regulatory

▪ Lack of energy performance classification

▪ Lack of energy certification scheme

▪ Structure and complexity of energy efficiency requirements

▪ Lack of institutionalised energy assessment procedures

▪ Insufficient institutional framework supporting energy performance

assessment

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EBRD integrated approach EBRD integrated approach

• Tailor made financing vehicles reflecting country and market specifics:

▪ REECL-type (Bulgaria);

▪ SlovSEFF type (Slovakia)

• Capacity building: local banks, technical consultants & engineers, local authorities

• Awareness raising: general public, project stakeholders, authorities

• Corporate sector: technology and service providers, utilities, project developers;

• Policy dialogue: assistance on development/upgrade of supportive legal and regulatory

framework:

▪ Secondary legislation on EE of buildings: Russia

▪ Law on Energy efficiency of buildings (Moldova, Kyrgyzstan)

▪ Regulations, technical reglaments, ministerial decree/ordinances (Ukraine, Moldova,

Kyrgyzstan);

▪ Sustainable Energy Action Plans (Kazakhstan, Moldova, Russia, Ukraine, Turkey)

• High leverage of national (Donor funded) support programs;

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EBRD Financing mechanisms (1)EBRD Financing mechanisms (1)

REECL – type: addressing dwelling level EE (apartments, family houses)

EBRD

Participating Banks

Sub-Borrower

Project Consultant

€Credit Line

€Loan AgreementConfirmsSub-Project compliance;Verifies implementation

Support ProgramFunded Contract

TrainingAnd Marketing

Support

• Financing disbursed: € 43 million (Oct. ‘05–Jan.’10) • Leverage of technical assistance to total investments is 31.6

• Leverage of incentives to total investments is 5.9

• Number of projects: 28,125 (ab. 7,000 per year)

• Number of residents affected with improved housing conditions: 69,100

• Financial revenues from energy savings: € 10.6 million per year

•Energy savings: 124.3 GWh per year

• Energy generation capacity substituted: 19.1 MW

• Carbon reductions: 170,530 tons CO2 per year

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EBRD Financing mechanisms (2): REECL market penetration rate EBRD Financing mechanisms (2): REECL market penetration rate

High performing (eligible) technologies 2004 2010

Share funded by REECL

EE Windows; Close to zero => 4%  30%

High grade insulation (roof, wall, floor); Close to zero => 3%  18%

Efficient Gas boilers and associated heating systems; Close to 45% => 78%  13%

Biomass Boilers and Stoves Close to 30% =>40%  6%

Solar Water Heaters Close to 8% => 14%  34%

Heat Pump Heating (air-to-air) Close to 5% => 25%  18%

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EBRD Financing mechanisms (3)EBRD Financing mechanisms (3)

REECL 2 – type: addressing both dwelling as well as building level EE (groups of residents, informal associations, associations as legal entities, ESCOs, management companies, construction companies)

• Accent on promotion and support of Housing Associations:▪ Legal advise;▪ Standard set of institutional/management documentations▪ Conceptual design for complex building refurbishment;▪ Attendance on General Meetings when decisions on refurbishment made;

• Wider spectre of eligible techniques (gasification, photovoltaics, heat recovery mechanical ventilation in addition);

• No incentives for participating banks;

• High performance requirements of eligible techniques;

• Variable incentives for different categories of Borrowers and per type of projects

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Financing mechanisms (4)Financing mechanisms (4)

SlovSEFF – type: addressing complex building refurbishment through financing housing associations (adequate housing legislation required)

EBRD

Participating Bank

Sub-Borrower

Independent Energy ExpertConsultant

€Credit Line

€Loan AgreementTechnical AssistanceEnergy Audits

Implementation Verification

TrainingAnd Marketing

Support

EBRD

Participating Bank

Sub-Borrower

Independent Energy ExpertConsultant

€Credit Line

€Loan AgreementTechnical AssistanceEnergy Audits

Implementation Verification

TrainingAnd Marketing

Support

Support ProgramFunded Contract

Support ProgramFunded Contract

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SlovSEFF resultsSlovSEFF results

• Financing disbursed: € 38 million (2008-2009) • Leverage of technical assistance to total investments is 32

• Leverage of incentives to total investments is 7.4

• Number of projects: 218 apartment buildings (12,000 apartments)

• Number of residents affected with improved housing conditions: 25,000

• Financial revenues from energy savings: ab. € 3.2 million per year

•Energy savings: 55 GWh per year

• Carbon reductions: 28,400 tons CO2 per year

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Commercial buildings: Case Study – Pulkovo Airport (Russia, 2010)Commercial buildings: Case Study – Pulkovo Airport (Russia, 2010)

Total investment costs of € 1,236 M for

extension of air fields, refurbishment of

existing and development of a new Terminal

The EBRD arranged an energy audit with

cost benefit analysis and recommendations

The airport operator FRAPORT incorporated

recommendations in the Project

EBRD finance: €120 M, including €17.2 of energy efficiency investments

▪ Advanced thermal protection of all building premises

▪ Implementation of advanced HVAC (heat recovery, VSD fans&pumps, etc)

▪ Integrated Building Management System

▪ Small-scale gas turbine CHP: 7 MW and absorption cooling: 5.8 MW

▪ Snow harvesting and biogas plant still under consideration

▪ Energy/carbon savings: 42,120 MWh/ 12,396tCO2

EPC Programme Outline

Aim to support development of public EPC market in CEE and CIS, initially: Russia, Ukraine, Romania and Bulgaria

Use initial TA to assess market and identify main obstacles

Implement capacity building programme to support cities, ESCOs and banks

Provide initial financing through local authorities or dedicated funds

Status – Russia and Ukraine

Completed studies in Russia and Ukraine of scope for EPC inlcuding market assessment and analysis of legal framework. Conclusion: it can be done!

Advising Russian government on dedicated EPC legislation in energy efficiency law (261-FZ) and need for amendments in related legislation (budget code and procurement law)

Funding in place ($10m from GEF) for broad capacity building programme to help Russian cities prepare EPC tenders

Working with Ukraine cities to provide municipal loan to finance initial EPC programme combined with similar capacity building support

Status – Romania and Bulgaria

Market studies to be completed end 2010. Initial indications positive

Funding in place in Romania ($5m, GEF) and Bulgaria (€5m KIDSF) for capacity building and municipal support TA programme

Discussions with public energy efficiency funds (BEEF and FREE) to recapitalise for funding EPC contracts through purchase of receivables

Directly financed private sector ESCOs also being prepared

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Conclusions

▪ High level support on financing EE is present at EBRD;

▪ Policy dialogue between EBRD and the national Governments needs to result in concrete outputs;

▪ Resources, experience and mechanisms of financing EE available at EBRD;

Thank you!