EBRD SUPPORT FOR GREEN ECONOMY INVESTMENTS

EBRD SUPPORT FOR GREEN ECONOMY INVESTMENTS Stefania Racolta-Cruceru Associate Director, Product and Business Development Energy Efficiency and Climate Change

Contents EBRD AND THE CLIMATE CHALLENGE CONTEXT MAINSTREAMING GREEN FINANCING AT EBRD RECENT HIGHLIGHTS IN EU MEMBER STATES 2

About the EBRD Public financing institution established in 1991 to promote transition to market economies Owned by 67 countries, the EU and the EIB Operates in 36 countries in Central and Eastern Europe, Central Asia and the Southern and Eastern Mediterranean Triple-A rated 30 billion capital base 41 billion portfolio 8.9 billion average annual business volume in the past three years 3 key operational principles Sound banking Transition impact Environmental sustainability 3

High energy intensity in the EBRD Region Energy intensity of economies in the EBRD region and the EU in 2013 (data from IEA) 1,5 The EBRD region has some of the most energy-intensive economies in the world (e.g. Ukraine is the 10th in the world, Russia the 11th, Kyrgyz Rep. the 13 th ). 11 out of the 12 EU MS which are EBRD Countries of Operations have intensity levels above the EU-28 average. 1,0 EU-28 average 0,5 0,0 tones of oil-equivalent / US$ 1,000 of GDP (at market X-rates) Denmark UK Italy Germany France Czech Rep. Cyprus Greece Croatia Slovenia Hungary Lithuania Poland Latvia Romania Slovakia Estonia Bulgaria Turkey Albania Morocco Tunisia Montenegro Macedonia (FYR) Georgia Jordan Armenia Azerbaijan Kosovo Bosnia & H Serbia Belarus Egypt Tajikistan Russian Fed. Moldova Kazakhstan Mongolia Kyrgyz Rep. Ukraine Turkmenistan Uzbekistan Other EU MS EU MS and EBRD Countries of Operations Other EBRD Countries of Operations 4

Carbon intensive economies CO 2 emission intensity of economies in the EBRD region and the EU (2013 data from IEA) 11 out of the 20 most carbon-intensive economies in the world are in the EBRD region due to the heavy reliance on fossil fuels in their energy mix. 9 out of those 11 are net-importers of fossil fuels. All the EU MS which are also EBRD Countries of Operations have CO2 emission intensity levels above the EU average. 2,0 EU-28 average 1,0 0,0 tones of CO2/ US$ 1,000 of GDP (at market X-rates) France Denmark UK Italy Germany Czech Rep. Cyprus Lithuania Greece Hungary Croatia Slovenia Latvia Slovakia Romania Poland Bulgaria Estonia Albania Turkey Tunisia Morocco Georgia Armenia Montenegro Tajikistan Azerbaijan Macedonia (FYR) Jordan Belarus Egypt Russian Fed. Serbia Kosovo Bosnia & H Moldova Kyrgyz Rep. Kazakhstan Ukraine Uzbekistan Turkmenistan Mongolia Other EU MS EU MS and EBRD Countries of Operations Other EBRD Countries of Operations 5

Contents EBRD AND THE CLIMATE CHALLENGE CONTEXT MAINSTREAMING GREEN FINANCING AT EBRD RECENT HIGHLIGHTS IN EU MEMBER STATES 6

Mainstreaming green financing: EBRD strategies Since 2006 the EBRD has adopted cross-sectoral strategies: to mainstream across the Bank s operations, and to increase the share of business represented by projects which enhance the efficient use of energy and resources (water, materials) and contribute to the mitigation of and adaptation to climate change. 7

Mainstreaming green financing: EBRD business model direct & indirect financing investment grant support blended concessional finance appraise resource efficiency investment plans enhance the green financing capacity of partner financial institutions climate vulnerability risk assessments transition gaps & market scoping address sustainability & environmental market failures strengthen the institutional & regulatory context 8

Mainstreaming green financing: Delivery mechanisms EBRD Energy Efficiency & Climate Change team Local Financial Institutions External technical assistance Direct financing of large borrowers (corporates, municipal) Smaller borrowers and SMEs reached via local financial institutions EBRD financing EBRD and donor-funded technical assistance and grant support 9

Mainstreaming green financing: Results in 2006 H1 2016 FINANCED 1,150 projects and credit lines SIGNED 20.3 billion of green financing REDUCED 79 million tonnes of CO 2 /year >880 directly financed projects with green components, and >265 credit lines to locals financial institutions for on-lending to smaller sub-projects For projects with a total value of 112 billion In 2013-2015 green financing represented 31% of EBRD s total business. Estimated emission reductions equivalent to more than the annual energy use related CO 2 emissions of Romania or twice those of Sweden 10

Mainstreaming green financing: EBRD s Green Economy Transition strategy The latest EBRD climate financing mainstreaming strategy, the Green Economy 4 000 EBRD climate finance business volume Share in total Bank investments 34% 40% Transition (GET) aims to further scale up the Target GET financing share Bank s green business, and to include new areas of activity such as enhanced 3 000 30% environmental protection and technology transfer. GET aims: further scale-up the Bank s operational and policy activities to accelerate the transition of Countries of Operations to low-carbon and climate resilient economies 2000 15% enhance the environmental dimensionof the Bank s investment activities 1 000 innovative products (technical and financial) supporting private sector climate action and complemented by public sector channels. 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015... 2020 million 11

Contents EBRD AND THE CLIMATE CHALLENGE CONTEXT MAINSTREAMING GREEN FINANCING AT EBRD RECENT HIGHLIGHTS IN EU MEMBER STATES 12

EBRD green financing in the New Member States 5.1 billionebrd green financing for projects in EU Member States in 2006 H1 2016 270 green projects and credit lines with a total project value of approximately 33 billion 16 million tonnes of CO 2 of annual emission reductions (equivalent to half of Slovakia s current annual energy use-related CO 2 emissions) 1 billion channelled via credit lines with 30 partner financial institutions in the region by sector (in billion): Infrastructure Industry & agribusiness Financial institutions Energy by country Poland Romania Bulgaria Croatia Baltic countries Slovakia Slovenia Hungary Cyprus and Greece 0.7 0.5 1.3 2.7 5.1 billion 13

EBRD Sustainable Energy Financing Facilities Through Sustainable Energy Financing Facilities (SEFF) the EBRD extends credit lines to local financial institutions. Local financial institutions on-lend funds to small and medium-sized businesses, corporate and residential borrowers. Finance is provided for energy efficiency and small-scale renewable energy projects. SEFFs establish project implementation teams who appraise green project opportunities and support local financial institutions in raising their capacity to market, appraise and finance them. 14

Slovakia: residential energy efficiency via local banks PROGRAMME Aims to decrease Slovakia s energy intensity, especially after the closure of the outdated Bohunicenuclear power plant. SlovSEFF targets energy efficiency and renewable energy subprojects in the corporate and residential sectors. FINANCING STRUCTURE EBRD credit lines (2008-2014) Technical assistance and incentive grants 150 million 30 million (from the BohuniceInternational Decommissioning Support Fund, setup after the closure of the Bohunice plant) EBRD credit lines, extension 2015 Technical assistance and incentive grants 40 million 7.7 million (from the proceeds of a sovereign sale of carbon credits by the Slovak Republic to Spain, a transaction facilitated by EBRD s carbon market development efforts). PROJECT EXAMPLE An 8 stories block of 32 apartments built in 1975. Investment amount of 120,000, benefited from a SlovSEFF loan for 90% of the costs. Measures included: insulation of shield walls and basement ceiling, stairways and entrances windows replacement, stairway lighting regulation, solar panels. Energy savings of 52%, payback of 10 years. Photo credit: www.asb.sk RESULTS TO DATE (by end of Q1 2016) 6 local partner banks 158 million of SlovSEFFfunds on-lent to 700 projects, worth in total 257 million 600 loans for residential projects, accounting for 60% of SlovSEFF funds on-lent to date 86,000 inhabitants benefited Average IRR of residential projects of 9-10% 114,000 tonnes of CO 2 annual estimated emission reductions, 582 GWh primary energy savings. 15

Poland: equity support for green property fund CLIENT Hines is a private global real estate investment firm with locations in 19 countries and US$ 85 billion of assets under management. HINES FUND IN POLAND Established in 2014 by Hines and EBRD to invest in equity and quasi-equity of income-producing office and logistics assets in Poland. First-of-kind Fund with operating principles focused on creating added value through sustainability improvements beyond the market norms: Certifying 70% of acquired space under LEED/BREEAM Sustainability improvement targets between acquisition and exit of assets, to be pursued via sustainability focused and trained building management committees Introducing green lease clauses in lease agreements. EBRD is the originator of the mandatory sustainability criteria adopted by the Fund. EQUITY PARTICIPATION EBRD participation US$ 80 million Total capital commitment at closing US$ 155 million NEW BUSINESS MODEL The investment is part of an emerging EBRD line of business in promoting sustainable energy in buildings via property funds. The EBRD is working on standardising this type of equity product. The aim is to condition EBRD participation upon the fund adopting sustainable investment and operating principles beyond national norms. Initial assessment of the ranking of the Hines Fund management principles found that it is currently a global leader. 16

Bulgaria: energy efficiency in glass manufacturing CLIENT AND PROJECT Support for the expansion of the Bulgarian glass production lines of TrakyaCam A.Ş., a leading glass manufacturer in Turkey and South-eastern Europe. The aim is to diversify production to include higher value-added products such as coated glass, laminated and auto glass. INVESTMENT PLAN EBRD loan EIB parallel loan Client own funds 40 million 80 million 50 million GREEN INVESTMENT COMPONETS An advanced waste heat recovery system included in the new production line leads to significant energy savings and avoided emissions of approx. 20,000 tonnes of CO 2 /year. The project IRR is larger than 50%. An oxy-fuelling system of 12m increases the furnace combustion efficiency by 2-3% leading to savings in natural gas use and avoided emissions of 100,000 tonnes CO 2 /year. Full compliance with the EU Directive on Industrial Emissions. The production line includes an electrostatic precipitator and a selective catalytic reactor to limit dust and NO x emissions. Photo credit: www.sisecamduzcam.com 17

Romania: supporting sustainable energy in industry, power and the ESCOs sector via local banks PROGRAMME Two EBRD Sustainable Energy Financing Facilities were active in Romania in 2008-2015 aiming to develop the local financing market for sustainable energy projects in the industrial and commercial sectors. EEFF and RoSEFFcombined credit lines to local partner banks, technical assistance for sub-project appraisal and banks capacity building, and partial grant incentives. FINANCING STRUCTURE EBRD credit lines Incentive payments and technical assistance from the EU RESULTS TO DATE 7 local participating banks 130 million 19 million 7 million 470 sub-projects, total investment value of 164 million 290,000 tonnes of CO 2 estimated annual emission reductions comparable to 15% of the annual emissions from the energy use of buildings in Bucharest 900 GWhestimated energy savings comparable to 6% of the hydroelectricity produced in Romania. PROJECT EXAMPLE SE-GES, a Romanian ESCO, received a SEFF loan of 1.1 million from BRD GroupeSociétéGénéraleto build a heat and power cogeneration unit. The unit supplies baseload electricity and hot air to the factory of one of Europe s largest maize-based food producers, Sam Mills. The Build-Own-Operate-Transfer model means the ESCO builds the unit, gradually recovers the costs from energy sales and eventually transfers it to the site owner. The investment received an EU grant of 165,000. Primary energy savings were of 32% and emission reductions of 3,300 tco 2 /year. 18

Croatia: energy and water efficiency upgrades in municipal infrastructure CLIENT Two utilities in the city of Rijeka (population 213,000) one operating the water and wastewater network and another the district heating and gas distribution networks. FINANCIAL SUPPORT EBRD water and wastewater loan EBRD district heating loan WATER AND WASTEWATER INVESTMENTS 13 million 10 million Support for the first phase of an investment plan of 130 million (to be supported later with EU Structural Funds). Targets the extension of the water supply network and the wastewater collection system and the efficiency improvement of the wastewater treatment plant. Expected reduction of water losses from 25% to 20%, with overall estimated water savings of 720,000 m 3 /year. Enables alignment to environmental standards under the EU Directives on Drinking Water and Wastewater Treatment. DISTRICT HEATING INVESTMENTS Photo credit: www.visitrijeka.eu Rehabilitation of existing DH network over 7 km to reduce losses from 21% to 10% leading to savings of 12,400 MWh annually; IRR of 44%. Two gas-fired boilers replacing heat from light fuel oil-fired plants, to supply the local University, a hospital and 1,000 residences. The fuel switch and reduction in losses will result in emission reductions of 3,000 tco 2 /year. Introduction of an advanced energy management system Longer-term plan to transform larger heat only units to gas-fired CHP co-generation 19

Hungary: energy efficiency in public buildings PROGRAMME The Municipal Energy Efficiency Financing Facility has been setup to develop the capacity of banksin Hungary, Romania and Slovakia to address energy efficiency opportunities in the municipal sector. The facility brings together dedicated credit lines, technical assistance to supplement local capacity in running tenders, as well as grant support for the less commercial measures often required by these projects. FINANCING STRUCTURE EBRD credit lines (2009-2014) Technical Assistance from the EU Grant support for partial incentive payments 105 million 5 million 21 million RESULTS TO DATE (by end of 2015) 2 partner banks in Hungary, 1 in Romania and 2 in Slovakia 420 projects supported up to date with 94% of the MunSEFF funds. 80% are energy efficiency projects in buildings, the rest municipal infrastructure projects, mainly public lighting. 66 of the projects are implemented under concession or longterm maintenance or supply contracts. 18,000 tonnes of CO 2 estimated annual emission reductions and 88GWh of primary energy savings. PROJECT EXAMPLE Refurbishment of the heating system of a primary school in the municipality of Szombathely (of 80,000 inhabitants) The executing company, entered into an 12 years energy supply contract with the public authority, and delivered measures leading to 30% energy savings. The company benefited from a MunSEFFloan of 30,000 and an incentive payment of 4,500. 20

The Baltic region: supporting biomass energy CLIENT An Estonian producer of wood pellets with operations in Estonia, Latvia and Lithuania, also specialised in forestry management and electricity and heat generation through biomass-fuelled combined-heat-and-power (CHP) plants. PROJECTS In 2011, 2013 and 2015 the EBRD supported the financing of three pairs of new biomass CHPs in Estonia and Latvia. These produce both electricity to sell to the grid and heat to support the company s pellet business. The project IRRs were estimated at around 20%. INVESTMENT PLAN 2011 EBRD loan 34 million 2013 EBRD loan 30 million 2015 EBRD loan 42 million Parallel commercial banks lending 146 million IMPACT OF PROJECTS Photo credit: www.graanulinvest.ee New biomass-based generation capacity: 41 MW New biomass-based heat capacity: 109 MW Green electricity generation: 300 MWh/year Estimated emission reductions: 189,000 tonnes of CO 2 /year 21

Partner with EBRD in achieving green objectives! Benefits of Cooperation Experience:EBRD is a leading IFI in climate financing having provided 20.3 billion in climate financing since 2006; access to best practice, tested solutions and instruments Comprehensive approach: combination of policy support, project development support and financing instruments enables the sustainable development of resource efficiency markets Private sector oriented: experience in mobilising private sector participation and co-financing and reduce the burden on state/municipal budgets to invest in sustainable projects Financial leverage: each 1 of donor funds used by EBRD leverages approx. 5 of private co-financing Effective implementation: clients outsource part of the administrative burden of managing funds, designing and implementing effective green investment programmes. EBRD provides full and verifiable accountability at every stage of program implementation Funds utilisation: given EBRD s involvement, especially via targeted technical cooperation, mitigates the risk of limited absorption of funds due to capacity constraints, time required to develop and deploy a program from scratch Climate impact:all EBRD programmes have resulted in significant investments/energy and CO 2 savings and have often times been replenished/extended by donors Market sustainability: EBRD promotes market-based mechanisms and uses scarce donor resources to help address market barriers to investments, with the commercial financing covering the profitable investments needs; ultimately this leads to the creation of self-sustaining markets 22

2020 EBRD green financing objectives 40% 2020 target for the share of GET financing in EBRD annual new business 4 billion Target EBRD annual green business volume by 2020 18 billion Target cumulative EBRD green business in 2016-2020 23

THANKYOU For more information: http://www.ebrd.com/climatefinance