Investment Viability for Energy Efficiency and Renewable Energy Projects and

Good Case Examples

Energy Efficiency Forum – Astana, September 2010

Sergei Faschevsky Senior Consultant, Norsk Energisergei.faschevsky@energi.nowww.energi.no

What kind of projects are of interest Incentives and barriers to project implementationWho could provide money What information is needed to get the moneyHow could we (you and us) help?Good examples and lessons learnt

Content

The ideal situation?

A determined project developer with a good idea, know-how, optimism and good communication skillsClear ownership structureWell organised and credit-worthy project ownerHigh energy and CO2 prices Clear and harmonised legislationState support schemesFinancing institutions providing loan with low interest rates

What usually releases development of EE and RE projects?

Legal, regulatory and policy related barriers

Lack of awareness of or focus on EE and RE possibilities

No easy access to financing

Main barriers different in private and public sector

The ideal situation rarely appears…

Financial barriers:Mostly refered to:

Few domestic financing institutions targeting EE and RES projectsOften underminded:

Lack of awareness of financing optionsInsufficient technical and financial documentation of the project Lack of collateralReluctance to share financial data

Options for overcoming financing barriers

1. Self-finance (equity finance)2. Grants 3. Loans4. Special (innovative) financing schemes (e.g. JI)

Self-finance

Easiest and quickest way of implementing projects...

... but the company must have the money available

Smaller sized investments, very rapid pay-back

Need to convince company management...

Because often a focus is at technology upgrade

...therefore good explanation is therefore needed

Grants

Grants available for projects with good energy and environment impactsInternational Financing Institutions: NEFCO, WB ESMAP, GEFBi-lateral aid agencies: SIDA, USAID , SECOEU: PHARE, TACIS, Norwegian Ministry of Foreign Affairs

Grants usually made to governments, municipalities or other public organisations

Free money !!!Time consuming, may be tied to using certain countries consultants/servicesLess and less grant funding available for economies in transition

Wood wasteSawmill

Dryer, conv.timber

BiomassBoiler house

BiomassBoiler house

Verkhnetolomskij village Heat to the district heating system

PROJECT 1

PROJECT 2

Case 1: Utilising of wood waste, Verkhnetoloumskij

Norwegian programme contributed with technical assistance in project development and short term commercial loan;Second hand biomass boiler purchased from Sweden, demounted and transported to Verhnetulomski;Annual savings of 2300 t/heavy fuel oil or 200 000 USD/year;Pay-back less than 2 years;Financing: TEKOS - 500.000 USD ( 71 %); Norwegian Ministry of Foreign Affairs - 100 000 USD ( 12 %); Barents Interreg Programme - 80 000 USD

( 7 %), Barents Secretariat - 100.000 USD ( 10 %);Reliable heat supply to 3000 inhabitants of the village, significantly improved municiple economy and less pollution.

Combining various interests, Verhnetulomski municipality

The social dimension

LoansLoans more and more available for commercially bankable projects,

good energy and environment impacts an advantage;Loans usually made to governments and private companies, but can be

made to municipalities; Borrower needs to have good finances and transparent accounts;Borrower needs to have good security for the loan;Borrower needs to appreciate total costs and resources needed

to secure loan.

For large loans:International Financing Institutions: WB, IFC, EBRD, NIB/NEFCO, Austrian Development Bank, ADB,...

For smaller loans: Local banks (some have credit lines from IFIs such as EBRD)Some bi-lateral aid agencies: SIDA, USAID, KfW

Where to get loans?

Requirements for obtaining loans

Sound business plans for implementing a project Information on owners/partnersFinancial history: 3 years audited accounts, to international standards for international banksSecurity in the form of pledges, mortgages, guarantees etc.Equity contributions of at least 30% are often requiredFunds provided must be used in strict accordance with the aims stated in the original business plan.

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Two main types of projects:

1. Energy efficiency and/or environmental improvements in an existing facility with an ongoing business. Usually smaller scale and require loan financing.

2. Establishment of a new production facility or increasing theexisting production capacity. Usually renewable energy or co-generation. Investments are needed.

Summarizing our experience

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Energy Efficiency and Biomass Utilisation in Northwest Russia

In close cooperation with:

Guarantee IAS auditedaccounts

LDK 25

Arkhangelsk Pulp and Paper Mill

The project:Install dry sorting line for timberand new biomass boilers to supply sawmilland increase supply to local community.

Loan

Sawmill 25, Arkhangelsk Oblast

Phase I: Install new log sorting, to be completedPhase II: Install new bio-fuel boilers

35 000 MWh heat saved/yearDry bark can be used for energy (previously 40 000 m3 to dump)

Loan agreement signed (2,1 mill. Euro),

construction on-going

:

Sawmill 25, Arkhangelsk Oblast

Borrower: Local energy company (District Administration )Pudozh: 11 700 people, heating through 15 boiler houses, mainly coal fired

Small bioenergy project, Pudozh, KareliaNew biomass boiler and close down 4 coal fired boilers

Project:Install 3 MW boilerIncrease heat production by 30%Total investment 300 000 USDIRR = 50%Substitute consumption of 4 500tonnes coal per year

project

70% of invest.

Centre Project name and type Investment(USD)

Savings (USD/Year)

Reduced CO2 (t/yr)

AOEEC 1. Sawmill 25 9 738 000 3 103 380 43 010KEEP 2. Zheshart boiler conversion 597 000 424 000 15 000MOEEC 3. Verkhnetulomskij boiler conversion 820 000 290 000 9 600MOEEC 4. Energy efficiency Rasvumchorr Mine 74 000 39 000 7 750KEEP 5. Frequency converters at Prigorodny

greenhouse 86 000 91 380 --

KAEEC 6. Essoilla boiler conversion 2 020 000 203 000 4 890KAEEC 7. Vayrtsila boiler conversion 3 030 000 203 330 2 610KEEP 8. Vuktyl boiler conversion 534 000 423 000 6 090Total 16 899 000 4 777 090 88 950

Energy Efficiency in Industry and District Heating Projects implemented

The Norwegian programme has noticeably influenced the development of the market in Russia

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Establishing new facility (project type 2): often a combination of various sources

Aim: to find the optimal combination of Financial sources and Types of Financing that matches the needs of project and the investor’s demand for return

Aim: to find the optimal combination of Financial sources and Types of Financing that matches the needs of project and the investor’s demand for return

Innovative Financial Schemes:Third Party Finance/ Energy Performance Contracting LeaseBOOT FinancingExport Credit SchemesEmission reductions trading (e.g., JI)

Gas price for the industry, UAH/1000 m3  El. price for the industry, UAH/MWh

• Gas price grew 280% in 2005‐2008; 40% per year in average;• El.price grew 110% in 2005‐2008; 20% per year in average;• Ukraine is 50% more efficient now than in 1996; however its energy intensity is 

2.5 times higher than the EU average;• Emerging loan financing opportunities (NEFCO, NIB, EBRD,  EBRD’s UKEEP, 

IFC Cleaner Production);• Many lucrative project opportunities fail due to a lack of financing and  

projects development skills;

Case Ukraine: Energy Projects development

Economic Figure Units SumLength of transmission line км 6Project cost Mln. $ 50Gas savings bln.м3/ yr 0,11Gas savings at $300/1000 м3 Mln/yr 33Payback yr 2

Technically sound project with a need of a large investment

Recycling Waste Heat from Tripolje Coal Power Plant 

Institutional issues arise:A new JV entity is to be established (the plant is mostly state-owned);Source of equity financing?. Banks cannot finance the entire project;Various interested parties - all have to be contacted ;The project needs further developmentNo project developer!

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Case: Co-generation of electricity and heat from biomass at AgroUkrPtaha company, Lugansk Oblast

Project is related to co-generation of 2,3 MW electricity and 2,9 MW heat from biomass disposed at UkrAgroPtaha company in Lugansk oblast (Vlasovka village). The project developer, Sinaps invests its own capital and raise commercial loan and get a major stake in the joint venture:

Drying and gasifying of manure: 50 t/day

Own capital 1 786 153 EUROGrant /Other sources - EUROCommercial loan 4 167 690 EUROTotal, investments 5 953 843 EUROPayback 4 yrInternal Rate of Return 46 %

Project details:Methane generation – 4 mln м3/yearInvestments – 1,8 mln EUROwn capital – 30%Income (without ERUs) – 800 000 EURPayback – 2 yearsIRR – 50%

Financial and institutional solution:Establish a developer companyPrepare project documentationFind equipment supplier with Export credit resourcesEstablish BOOT scheme

Establishment an effective system for the landfill gas capture and compressing utilization at Sumylandfill 2

Landfill gas generation in Sumy

Landfill

Landfill gas generation

Fugitative methane emissions

Collection of the landfill

gas

Gas flaring

Compression of gas

Large scale gas-motor

Combustion at nearby brick

factory

Central electricity grid

Role of Project DevelopersIdentify potential projectsDevelop projects and its financing schemeOversee project implementationProvide advise on deviations and corrective actionsReduce project risks

Methodology advisers Technical experts

6 Energy Efficiency Centres established in NW Russia with the Norwegian support

Financing of bigger projects

International Financial Institutions

There are nogood projects

Owners of good projects

It is impossible to get a loan

Solution Capacity Building on Project Development, Financing, Implementation and Operation/monitoring

Business Planning

Energy Auditing

Implementation

Operation

Identification

Scanning

Capacity Building Programmes in several directions

Establishment and development of sustainable local EE CentresTraining Programmes

Financial EngineeringEnergy Auditing Energy managementMunicipal Energy PlanningCDM and JI

Step by step development, implementation and monitoring of projectsLinking financing institutions and project developersIntroduction of new technologies and solutionsReporting and information dissemination

Session 1

Session 2

Session 3

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Several Capacity Building Programmes by Norsk EnergyArchangelsk bioenergy

Zheshart fuel switch

Environmental project in Barents region

Tadsjikistan small hydropower

Ukraine project development

Georgia small hydropower development

Azerbaijan EE building sector

Armenia small hydropower

Bosnia CDM district heating sector

Macedonia EE&RE capacity building

China WHR ferroalloy industry

ConclusionsOne size DOES NOT fit allA number of solutions are required, but many are variations on a themeAssume flexible ownership structureLarge energy projects require stakeholder analysis and clear definition of roles and responsibilities and good structure of financingRole of a project developer is indispensiblePublic-private partnership often work for municiple projectsFinancing for projects still take time to developThere are barriers in all countries, but few that can not be overcome by the dedicated work of enthusistic project developersSmall is efficient” – quicker to realize, valuable experience gained before implementing large scale projects

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Thank you for your attention