Dr George ChavdarovBulgarian Energy Efficiency FundEnEffectSofia, Bulgaria

Energy Efficiency Fund as a Energy Efficiency Fund as a Means for Financing Heating Means for Financing Heating Network ImprovementsNetwork Improvements

Market and Technology Developments in Small Scale Heat Generation

International WorkshopBaku, Azerbaijan, October 20, 2005

District Heating Systems in Bulgaria• 21 commercial DH companies are

concentrated mainly in the district-center cities

• 20 of these companies were 100% state-owned

• The biggest company the District Heating Sofia SP JSCo. was 100% municipal property. Now it is 70% municipal property and 30% state-owned

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

District Heating Systems in Bulgaria

The Strategy for Development of DH during the period 2000-2005 takes into consideration the recommendations of the World Bank – “to launch a procedure for privatization and/or transfer of property rights on the DH companies, for which budgetary support will be ceased before the year 2004, to the local authorities”

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

District Heating Systems in Bulgaria• In 2004 the District heating companies

in the cities of Bourgas, Pleven, Veliko Tarnovo, Gabrovo, Lovetch, Pravetz and Rousse are offered for privatization

• The District heating companies in the cities of Vratza, Kazanlak, Lozniza, Razgrad and Yambol have been sold already

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

District Heating Systems in Bulgaria

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

DH in Gabrovo

Investment package “Residential buildings”

Investment package – “Substations”

Investment package – “Distribution network”

Example of Energy efficiency renovation of District Heating and Heating End-Use

Instruments for financing

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Practical experience

Regular bank loans

Starting with interest rates of 16-18%

Rapid growth of number of project, when interest rate reaches of 6-10%

Current interest rate 6-8% and less

A growing number of banks offer credits for EE projects

A growing number of entities, including power plants borrow bank credits under market conditions

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

General municipal bonds

Municipalities of Varna, Sliven, Svishtov, Dobrich

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

The example of Varva (€ 3 mln):

- Street lighting project

- International credit rating

- Performance risk taken by the municipality

- Performance based calculations made as for revenue bonds

Leasing equipment (capital/financial leasing)The example of Dobrich:

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

About 30 schools and kindergartens equipped

Budget restrictions avoided

Fixed payments / interest rates

Repayment period of 3 years

Cost raised due to the risk coverage (if buying up rejected)

Energy Service Companies (ESCOs)

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Financing of third party – usually a commercial bank

Repayment depends on the project performance

The ESCO guarantees the minimal performance

ESCO pays the difference if savings are below the estimated minimum

Combination of performance contracting with shared savings contracting

Shared savings contracts / Performance contracts

Energy Service Companies (ESCOs)The examples of Rousse and Sofia:

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Various municipal buildings / schools

Third party financing

The ESCO company takes the performance risk

The municipality pays fixed amounts

Difficulties faced in Rousse and Sofia - financial and technical

Energy Service Companies (ESCOs)

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Contract for provision of heat

Typically long-term contract – 20-30 years

ESCO ensures necessary maintenance and modernization of the heating system

Customers pay fixed (agreed) fee for the heat consumed

Applied for small hotels / applicable for municipalities

Heating contract / Chauffage contract

Carbon funds / Kyoto instruments

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

District heating modernization in Sofia and Pernik

World Bank Prototype Carbon Fund

Joint Implementation

District Heating modernization in Rousse (Japanese investors)

Gas distribution project for Gorna Oriahoviza, Veliko Tarnovo and Liaskovetz (Dutch investors)

Raising interest of foreign investors

Other financial schemes

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Joint venture in the city of Stambolijski

What municipalities could offer to investors

Equity financing

Financing by utilities

Possible financing by the regional electrical distribution companies (municipal projects under negotiations)

Special funds

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

EE projects in municipalities

EE projects in industries

National Environmental Fund (established under a special low)

Special funds

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

National Eco Trust Fund(established under a special low)

Gazification projects in municipalities

Industrial EE projects

Special funds

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

To soften the consequences of the decommissioning of the first reactors of the Kozloduy nuclear PS

To encourage energy efficiency measures and the use of RES

Credit lines from EBRD to several Bulgarian banks

Volume: € 50 000 000

Period: 5 – 7 years

Technical assistance

Kozloduy Fund / EBRD(established by and agreement with the EU)

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Market based interest rate

Subsidies of:

- 7.5% for energy efficiency projects

- 20% for RES projects

Types of credit lines:

- for public (municipal) buildings

- for residential buildings

Kozloduy Fund / EBRD

Special funds

Special funds

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Main sponsors: GEF / World bank, Bulgarian government / donors / public-private partnership

Independent revolving self-financing instrument, created by the EE Act (2004)

Based on market competitive conditions

Co-financing / partnership with other financing institutions

Bulgaria Energy Efficiency Fund (BEEF)(established by a special law)

Special funds

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Financial products:

- loans,

- partial guarantees,

- technical assistance for project development

Bulgaria Energy Efficiency Fund (BEEF)

Special funds

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Types of projects:

- industrial projects

- building projects

- district heating projects

- municipal end-users’ projects

- other end-users’ projects

Bulgaria Energy Efficiency Fund (BEEF)

Special funds

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Requirements to the projects:

- More than ½ measurable savings

- Implementation of proved technologies

- Project size: € 15 000 - € 1 500 000

- Project owners provide over 10% own financing

- Payback period: 3 - 5 years

Bulgaria Energy Efficiency Fund (BEEF)

Special funds

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Bulgaria Energy Efficiency Fund (BEEF)

Donors’ assembly

Market players:FI / ESCOs / End-users

MEER

WB

GEF

Privatedonors

BEEFFund management

Econoler International (Canada) / EnEffect (BG) / Elana (BG)

TA Loans Guarantees Otherforeigndonors

Lessons of the implementation of various financial instruments for energy efficiency projects in Bulgaria

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Local capacity building in Bulgaria

Training of managers and specialists on:

- energy auditing

- project development

- project financing

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Competition or Collaboration

Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Aggressive marketing policy of the BEEF Fund Management

Technical assistance for project identification and development

Best possible credit / guarantee policy, corresponding to the real market conditions

Strategic cooperation with other financial institutions to ensure co-financing of projects

How could BEEF survive?

Contacts:

Center for Energy Efficiencywww.eneffect.bg

E-mail eneffect@mail.orbitel.bgTel.: +359 2 963 1714 or 963 0723Fax: +359 2 963 2574