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Dr George Chavdarov Bulgarian Energy Efficiency Fund EnEffect Sofia, Bulgaria

Market and Technology Developments in Small Scale Heat Generation International Workshop Baku, Azerbaijan, October 20, 2005. Energy Efficiency Fund as a Means for Financing Heating Network Improvements. Dr George Chavdarov Bulgarian Energy Efficiency Fund EnEffect Sofia, Bulgaria.

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Dr George Chavdarov Bulgarian Energy Efficiency Fund EnEffect Sofia, Bulgaria

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  1. Market and Technology Developments in Small Scale Heat Generation International Workshop Baku, Azerbaijan, October 20, 2005 Energy Efficiency Fund as a Means for Financing Heating Network Improvements Dr George Chavdarov Bulgarian Energy Efficiency Fund EnEffect Sofia, Bulgaria

  2. Energy Efficiency Fund as a Means for Financing Heating Network Improvements District Heating Systems in Bulgaria • 21 commercial DH companies are concentratedmainly in the district-center cities • 20 of these companies were 100% state-owned • The biggest companythe District Heating Sofia SP JSCo. was 100% municipal property. Now it is 70% municipal property and 30% state-owned

  3. 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”

  4. 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

  5. Energy Efficiency Fund as a Means for Financing Heating Network Improvements • District Heating Systems in Bulgaria Example of Energy efficiency renovation of District Heating and Heating End-Use DH in Gabrovo Investment package “Residential buildings” Investment package – “Substations” Investment package – “Distribution network”

  6. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Instruments for financing Practical experience

  7. Energy Efficiency Fund as a Means for Financing Heating Network Improvements 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

  8. Energy Efficiency Fund as a Means for Financing Heating Network Improvements General municipal bonds Municipalities of Varna, Sliven, Svishtov, Dobrich 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

  9. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Leasing equipment (capital/financial leasing) The example of Dobrich: 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)

  10. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Energy Service Companies (ESCOs) Shared savings contracts / Performance contracts 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 contractingwith shared savings contracting

  11. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Energy Service Companies (ESCOs) The examples of Rousse and Sofia: 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

  12. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Energy Service Companies (ESCOs) Heating contract / Chauffage contract 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

  13. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Carbon funds / Kyoto instruments World Bank Prototype Carbon Fund District heating modernization in Sofia and Pernik 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

  14. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Other financial schemes Equity financing Joint venture in the city of Stambolijski What municipalities could offer to investors Financing by utilities Possible financing by the regional electrical distribution companies (municipal projects under negotiations)

  15. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Special funds National Environmental Fund (established under a special low) EE projects in municipalities EE projects in industries

  16. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Special funds National Eco Trust Fund(established under a special low) Gazification projects in municipalities Industrial EE projects

  17. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Special funds Kozloduy Fund / EBRD(established by and agreement with the EU) 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

  18. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Special funds Kozloduy Fund / EBRD 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

  19. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Special funds Bulgaria Energy Efficiency Fund (BEEF)(established by aspecial law) 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

  20. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Special funds Bulgaria Energy Efficiency Fund(BEEF) Financial products: - loans, - partial guarantees, - technical assistance for project development

  21. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Special funds Bulgaria Energy Efficiency Fund(BEEF) Types of projects: - industrial projects - building projects - district heating projects - municipal end-users’ projects - other end-users’ projects

  22. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Special funds Bulgaria Energy Efficiency Fund(BEEF) 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

  23. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Special funds Bulgaria Energy Efficiency Fund(BEEF) Donors’ assembly GEF BEEFFund management Econoler International (Canada) / EnEffect (BG) / Elana (BG) WB MEER Privatedonors Otherforeigndonors TA Loans Guarantees Market players: FI / ESCOs / End-users

  24. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Lessons of the implementation of various financial instruments for energy efficiency projects in Bulgaria

  25. 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

  26. Energy Efficiency Fund as a Means for Financing Heating Network Improvements Competition or Collaboration How could BEEF survive? 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

  27. Contacts: Center for Energy Efficiency www.eneffect.bg E-maileneffect@mail.orbitel.bg Tel.:+359 2963 1714 or 963 0723 Fax: +359 2 963 2574

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