World Bank Approach to Financing Heating Infrastructure

1
World Bank Approach to Financing Heating
Infrastructure Europe and Central Asia (ECA)
Region

• Presentation at Conference on Heating Sector
  Institutional Reform in the FSU
• Baku, October 21, 2005

2
Typical Approaches to Heating Sector Improvements

• Institutional reform, pricing, subsidy
  restructuring
• Supply-side upgrades, system conversions
• Demand-side improvements through financial
  intermediation and/or energy service company
  (ESCO) models

3
World Bank Study Coping with the Cold

• Survey data from Armenia, Croatia, Kyrgyz
  Republic, Latvia, Lithuania, Moldova and
  Tajikistan
• Study focused on both district heating and
  individual solutions based on electricity, fossil
  fuels and fuelwood
• Included willingness-to-pay surveys in several
  countries

4
Coping with the Cold, Challenges

• Inability to regulate individual demand in DH
  systems. Over- and under-heating is frequent
• Heating infrastructure is deteriorating due to
  under-investment and mismanagement
• Low collection rates - unable to disconnect
  non-payers
• Many networks fully or partly abandoned
• Consumers substitute with dirty energy

5
Coping with the Cold, Poor vs. Non-Poor

• Non-poor people spend 30-50 per year on heat
• Poor people spend 25-40 per year on heat
• The non-poor has better quality of heating with
  fewer adverse health consequences
• poor peoples heat demand is quite unelastic
  this means that if DH prices go up and they can
  not control demand, they cannot and will not pay
  for service

6
Coping with the Cold Conclusions (1)

• Heating systems should only be modernized in
  high-density areas where DH is cost competitive
• Block heating and building-level solutions based
  on natural gas may be feasible if home owners can
  organize themselves
• Targeted subsidies may be needed to avoid welfare
  losses for the poorest DH costumers if tariffs
  become cost-reflective

7
Coping with the Cold Conclusions (2)

• Policies and investment framework must allow poor
  people to opt in or out
• Targeted vouchers for equipment and possibly fuel
  may be promising instruments
• In bigger networks lifeline tariffs can be
  effective
• Targeted subsidies may be needed to avoid welfare
  losses for the poorest DH costumers if tariffs
  become cost-reflective
• Network investments must be coupled with metering
  and control options

8
Ongoing WB EE Projects in CEE

• Lithuania (GEF)
• Poland (IBRD and GEF)
• Croatia (IBRD and GEF)
• Romania (GEF)
• Bulgaria (GEF)
• ESMAP project in Poland

9
Lithuania Heat Demand Management Project

• Project launch 2003
• 6.5 million VE 2.5m and VCM 4.0m
• VE Component (Dalkia) Heat regulation
  improvements. 75 support from Effective Energy
  Consumption Fund. Total planned investment 34m.
  
• VCM Component Building envelope improvement
  through revolving fund with international fund
  manager

10
Poland EE Projects (1)

• Krakow EE Project (launched 2002)
• Recipient MPEC, Krakow
• 15 million IBRD loan, of which 7.5 million for
  ESCO activities
• Operation of utility based ESCO (POE) as
  subsidiary of MPEC
• Targets public sector buildings in Malapolskie
  Region

11
Poland EE Projects (2)

• Poland EE Project (launched spring 2005)
• Recipient BGK bank and POE, Krakow
• 11 million GEF Grant 7 million for guarantee
  facility, 2 million for POE ESCO investments, 2
  million for TA
• Work through participating banks, guarantee
  coverage 50-70
• Active pipeline development and support to energy
  audits.

12
Romania Energy Efficiency Fund

• Launched 2003
• GEF Grant of 10 million 8m for EE investments
  and 2m for TA
• International Fund Manager
• Debt financing only (co-financing)
• Targets direct financing as well as TPF through
  ESCOs

13
Bulgaria Energy Efficiency Fund

• Launched Summer 2005
• GEF grant of 10 million 4.5m partial credit
  guarantee, 4.0m debt financing, 1.5m TA
• Co-financed by 1.8 million from GoB and 5.75
  million from bilateral donors (tbc).
• Fund will be flexible employing debt finance or
  guarantees as needed
• International Fund Manager

14
Russia Municipal Heating Project

• 85m IBRD loan onlent to 5-9 city governments
• General system rehabilitation
• Investment support, TA and institutional support
• Trend towards introducing building-level
  substations
• Private or quasi-private operators have replaced
  municipal companies in a few cases
• Project is ongoing and completion is expected by
  end of 2007