Capacity Building for GHG Emissions Reduction through Energy Efficiency in Romania

1
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• Regulatory and Financial Instruments that can
  Enable the Spread of
• Clean Technologies
• Workshop 3

Mark Velody (Moderator) UNDP/GEF Energy
Efficiency Financing Team Tel. [phone]
461 www.energie.undp.ro
The Power to Change British Embassy
Event Central University Library 18th November
2005
2
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• I will introduce three aspects of energy
  efficiency in Romania today

3
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• I will introduce three aspects of energy
  efficiency in Romania today
• 1. How UNDP/GEF leverages EE investment

4
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• I will introduce three aspects of energy
  efficiency in Romania today
• 1. How UNDP/GEF leverages EE investment
• 2. Lessons learned... (so far)

5
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• I will introduce three aspects of energy
  efficiency in Romania today
• 1. How UNDP/GEF leverages EE investment
• 2. Lessons learned... (so far)
• 3. How regulatory and financial
  instruments
• can help to upscale the rate of
  investment
• in clean technologies

6
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• So lets begin

7
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• I will introduce three aspects of energy
  efficiency in Romania today
• 1. How UNDP/GEF leverages EE investment
• 2. Lessons learned... (so far)
• 3. How regulatory and financial
  instruments
• can help to upscale the rate of
  investment

8
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• Four partners - ARCE, UNOPS, UNDP and GEF
• Romanian Agency for Energy Conservation -
  Governmental partner
• UNOPS - Executing agency
• UNDP - Implementing agency
• GEF - Main financier (2 million)
• launched the EE Financing Project in 2003
• Recruited a Project Manager part-time at
  first, full-time from December
• who ran a Start-up Phase planning,
  hiring/equipping, holding launch event etc
• and recruited a local team of six for the
  core tasks of outreach, banking,
• finance, engineering, administration and
  logistics.
• so the EE Financing Team was operational by
  January 2004
• Re-launch of an earlier initiative that had
  stalled in 2001 and was re-designed in 2002

9
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• The team now consists of seven full-time staff
• Mark Velody Project Manager
• Laura Radulescu Outreach Manager
• Bogdan Angheluta Energy Efficiency Manager
• Stefania Racolta Head of Banking
• Ciprian Ghetau Project Finance Manager
• Raluca Ghineraru Office Manager
• Emilian Popescu Driver/Administrator
• supported by several teams of specialist
  consultants
• Companies (so far) - ASA Holding, CPA,
  Energobit, EnergoEco, Energolux,
• Forenerg, Enero, GES, INL, IPCT Instalatii,
  IPROMET, ISCE, OVM-ICCPET,
• SC Proiect, TRAPEC, Wayda si Wayda

10
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• We apply a simple formula to leverage investment
  in energy efficiency
• Small, non-reimbursable investments by UNDP/GEF
• should leverage large energy efficiency
  investments by others

11
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• We offer three basic services
• 1. Technical Assistance (T.A.)
• - Typically a Feasibility Study by specialist
  consultants
• - Private sector and public sector are eligible
• 2. Direct Contributions (D.C.)
• - Equipment grant - maximum 50,000 or 20 of an
  investment
• - Only for public sector
• 3. Deal building
• - Bringing energy efficiency investors and
  financiers together
• - Advising on the range of commercial financing
  options that are
• available in Romania.

12
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• and we offer one basic deal
• If UNDP/GEF funds T.A. or D.C.
• - i.e. a feasibility
  study or an equipment grant
• Then Project Developer will carry out the
  EE project and
• Financier will make investment
  funds available
• D.C. is offered to public sector investors
  only, and disbursed after the investor has
  entered into a firm financing or works contract
  for the main investment. The maximum DC is the
  lower of 50,000 or 20 of the value of the
  investment. This facility is now fully
  subscribed, but not yet fully disbursed meaning
  that funds will be disbursed on municipal
  projects that are already under-development but
  have not yet financial closure.

13
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• And this simple formula works!

14
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• Key financial results
• We have leveraged over 25 million of definite
  investments so far
• Public sector/definite 7,959,600
• Private sector/definite 17,537,500
• Total/definite 25,497,100
• expect another 6.6 million to result from
  work-in-progress
• Public sector/possible 2,945,000
• Private sector/possible 3,650,000
• Total/possible 6,595,000
• and have a large and growing pipeline of
  potential investments
• From which we expect to leverage many more
  millions of investment dollars
• Definite means a financing or works contract
  is now signed or awarded, or investment is
  under-way or complete.

15
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• 8 million of Public Sector investments are now
  definite
• Assistance Town/description Investment Main
  financing source
• DC Panaci / Kindergarten
  25,500 Governmental financing
• DC Tg Jiu / HCA/TRV
  132,100 Grant
• DC Radauti / Meters
  170,000 Bank loan (BCR)
• DC Cluj / HCA/TRV
  188,000 Supplier credit
• TA/DC Tarnaveni / Buildings
  279,000 Bank loan (BCR)
• TA/DC Sighisoara/ Schools
  280,000 Municipal financing
• TA/DC Alba Iulia/ Schools
  620,000 Municipal financing
• DC Iasi / District Heating
  1,300,000 Loan from FREE (World Bank/GEF)
• TA Vatra Dornei / Water 3,200,000 EIB,
  EU and Government
• DC Cluj / Burners/automation.
  600,000 Supplier credit
• TA/DC Satu Mare/ Schools
  150,000 Municipal financing
• TA/DC Tulcea / District Heating
  790,000 Municipal financing
• TA/DC Focsani/ Water Pumps 85,000
  Supplier credit
• TA/DC Victoria / Buildingsi
  140,000 Municipal financing
• TA Technical Assistance (typically a
  Feasibility Study) DC Direct Contribution
  (Equipment Grant)

16
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• A further 2.9 million of Public Sector
  investments are probable
• Assistance Town/description Investment
• TA (DC) Orastie / Lighting
  350,000
• TA (DC) Brad / District heating pumps
  1,200,000
• TA (DC) Vaslui Solesti / Water system
  500,000
• TA (DC) Valea lui Mihai / Lighting
  150,000
• TA (DC) Salonta / Lighting
  350,000
• (DC) Oradea / County hospital
  370,000
• (DC) Bran / Lighting
  125,000
• TA Technical Assistance (typically a
  Feasibility Study)
• DC in the case of probable projects - means
  that we envisage providing a non-reimbursable
  Direct Contribution of maximum 20 of the value
  of the investment (typically lower) but only
  when a firm agreement to implement the main
  investment is in place.

17
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• 17.5m of definite Private Sector
  investments... could rise to 21 m
• Assistance Company / description Investment
  Main type of Financing
• Six definite private sector investments value
  17.5 million (plus)
• TA Nord Simex /wood waste
  600,000 Bank/own Financing (BRD)
• TA Ulerom / sunflower husks
  560,000 Loan FREE (WB/GEF)
• TA Iridex / hospital waste
  1,377,500 Leasing (Piraeus)
• TA Sicomed / CHP 2,000,000
  BOOT - RAEF/RIEEC/SE-GES
• TA Barlad/Rulmenti / CHP 13,000,000
  Bank Financing (BCR)
• TA Mangalia/Rominservices/ solar/substation
  (value tbc)
• Five possible private sector investments -
  value 3.6 million
• TA Bucuresti/Isovolta/ steam generation
  700,000
• TA Victoria/Viromet/ steam recovery
  300,000
• TA Ploiesti/Timken/ CHP 2,000,000
• TA Dej/Samus Mex/ wood waste 350,000
• TA Deva/Matex/ compressors/boilers
  300,000

18
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• I will introduce three aspects of energy
  efficiency in Romania today
• 1. How UNDP/GEF leverages EE investment
• 2. Lessons learned... (so far)
• 3. How regulatory and financial
  instruments
• can help to upscale the rate of
  investment
• in clean technologies

19
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• Six lessons learned (so far)
• 1. An enthusiastic, empowered financial
  decision-maker is the key success factor!
• - Managing Director with the support of the
  Board or
• - Mayor with the support of the local council
• 2. Involve a bank from day 1
• - A Project Developer that hesitates to
  involve a bank is probably not creditworthy
• - Most EE loans involve balance-sheet
  financing, not project finance
• - The banks have loan pipelines so
  get the project entered early
• 3. The value of most municipal energy efficiency
  investments is small
• - Only 350,000 for a typical
  municipal project
• - The (few) multi-million dollar
  projects rarely apply for free technical
  assistance
• - So adopt a sausage machine to
  assist multiple projects

20
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• Six lessons learned (so far)
• 4. Creditworthy project developers usually
  already have a preferred lender
• - (in countries like Romania that have a
  well developed banking market)
• - So do not tie grant-funded technical
  assistance to use of any one lender
• - Offer technical assistance on a no
  strings attached basis
• 5. A team that leverages investment needs
  banking, finance and outreach skills
• - Engineering skills are essential, but
  not sufficient
• - So hire a multidisciplinary team with
  mixed backgrounds and local knowledge
• 6. We find that many Energy Efficiency investment
  opportunities are lost!
• - Only 21 of 250 EE proposals to
  UNDP/GEF have, so far, become investments
• - Technically robust, financially
  viable, bankable energy efficiency projects by
  credible project developers are frequently not
  implemented in Romania.

21
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

Many Energy Efficiency investment opportunities
are lost!
Energy efficiency investment proposals
22
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

Many Energy Efficiency investment opportunities
are lost!
Energy efficiency investment proposals
that are technically robust with good internal
economics
23
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

Many Energy Efficiency investment opportunities
are lost!
Energy efficiency investment proposals
that are technically robust with good internal
economics
by creditworthy project developers
24
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

Many Energy Efficiency investment opportunities
are lost!
Energy efficiency investment proposals
that are technically robust with good internal
economics
by creditworthy project developers
who are willing to borrow
25
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

Many Energy Efficiency investment opportunities
are lost!
Energy efficiency investment proposals
that are technically robust with good internal
economics
by creditworthy project developers
who are willing to borrow
willing to prioritise Energy Efficiency
26
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

Many Energy Efficiency investment opportunities
are lost!
Energy efficiency investment proposals
that are technically robust with good internal
economics
by creditworthy project developers
who are willing to borrow
willing to prioritise Energy Efficiency
and who dont change their minds after the
Feasibility Study has been carried out
27
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• I will introduce three aspects of energy
  efficiency in Romania today
• 1. How UNDP/GEF leverages EE investment
• 2. Lessons learned... (so far)
• 3. How regulatory and financial
  instruments
• can help to upscale the rate of
  investment
• in clean technologies

28
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• There is a clear need for Romania to upscale
  energy efficiency and renewable energy investment
• UNDP/GEF is helping build capacity for Romania to
  invest
• - We exceeded investment targets agreed by the
  Government, UNDP and GEF
• - (Target 20 investments worth 12.5 million
  result so far 21 worth 25 million)
• - But in terms of Romanias need to lower GHG
  emissions, this is a small sum
• To become really effective, UNDP/GEF and ARCE
  must create a multiplier effect
• - So we do, - of course - disseminate results,
  train, create replication opportunities etc.
• But what more can be done to really upscale EE
  investment in Romania?

29
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• On the positive side the investment climate for
  energy efficiency and renewable energy is clearly
  improving
• Higher energy prices
• - so energy efficiency investments more
  economically attractive
• Local energy efficiency engineering
  companies are better and better
• - incorporating commercial financing
  considerations into technical studies
• The banking sector is now performing well
• - although interest rates are higher and
  security requirements tougher than in the EU
• EU Accession funds are around the corner
• - although the capacity of Romanian to absorb
  these funds will be a challenge
• The first private sector example of BOOT
  financing for CHP is up-and-running
• - although no-one is targeting a potential
  public sector BOOT CHP market
• Legislation, regulation and fiscal policies
  increasingly favour EE and RE

30
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• On the negative side there are still many
  barriers to overcome
• Short-term budgeting (one year) by the public
  sector
• - Well-designed EE and RE programmes
  should span several budget years
• - Municipalities who understand the
  benefits of energy efficiency in public buildings
  
• can only invest in a handful of
  buildings each financial year.
• Legal and fiscal barriers
• - Inhibit the development of ESCOs
• Ability of apartment buildings to borrow to
  invest in energy efficiency
• - Legal barriers have been overcome
• - but loan guarantee products to support
  this type of investment are rare
• - and awareness of the benefits of energy
  efficiency remains low
• And many other barriers

31
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• Todays expert panel will present solutions to
  some of the regulatory and financial barriers
  that inhibit the spread of clean technologies
• Sorin Birsan
• - Director, Romanian Agency for Energy
  Conservation (ARCE)
• Nicolae Opris
• - President, National Agency for Energy
  Regulation (ANRE)
• Vlad Trusca
• - Kyoto National Focal Point, Ministry of
  Environment and Water Management
• James Hyslop
• - Deputy Head of Mission, EBRD
• Adrian Ghita
• - Romanian Americal Enterprise Fund

32
Capacity Building for GHG Emissions Reduction
through Energy Efficiency in Romania

• Regulatory and Financial Instruments that can
  Enable the Spread of
• Clean Technologies
• Workshop 3

Mark Velody (Moderator) UNDP/GEF Energy
Efficiency Financing Team Tel. [phone]
461 www.energie.undp.ro
The Power to Change British Embassy
Event Central University Library 18th November
2005