Workshop on the Polices and Schemes for Financing Energy Efficiency in Buildings Belgrade, 18-19 June, 2013 CURRENT STATUS AND PERSPECTIVES OF ESCO MARKET IN UKRAINE: MODEL and mechanisms FOR FINANCING ENERGY EFFICIENCY IN BUILDINGS: Alexander Novoseltsev Alexander Kovalko Tetiana Evtukhova anovos@i.com.ua
Part I energy saving potential estimation in residential and public buildings of Ukraine
General characteristics of the building stock in Ukraine Share of buildings by years of construction 1981 1990; 10,8% 1971-1980; 16,2% Total area of the building stock = 1080 mln. m 2 Population of Ukraine = 46 mln. inhabitants After 1991; 7,4% 1961 1970; 24,1% Before 1919; 4,6% 1919 1945; 11,8% 1946 1960; 25,1% Communal 5,6% Ukraine HDD = 3660 Germany HDD = 3130 Serbia HDD = 2580, heating degree days Building stock allocation by type of ownership State 1,4% Private 93,0% Share of the total area building stock equipped with suitable centralized services 60,3% 58,2% 63,2% 83,1% 43,9% 100,0%
energy consumption in residential and public buildings of Ukraine for year 2010 18 16 14 12 10 mln. toe 16,4 8 6 6,0 4 2 0 1,4 Coal and peat 0,7 Oil products Natural gas, population 1,0 Natural gas, public 0,4 Renewables and waste 3,2 Electricity, population 1,6 Electricity, communal Heat energy, population 2,5 Heat energy, communal Most of Ukraine s building stock is multi-apartment panel buildings made of single-layer concrete slabs with thermal strength of walls and ceilings in 2-4 times lower that required by relevant standards in countries of European Union
energy performance indicators for residential and public buildings in Ukraine and Germany Indicators, kwh/m 2 a 740 610 400 590 580 470 330 500 400 330 240 210 Ukraine, 1970 Ukraine, 2010 Ukraine, 2020 Germany, 1970 Germany, 1984 Germany, 1995 120 320 240 280 180 120 Total primary energy Total final energy Heating energy Energy saving potential in buildings: Ukraine 2020 = Germany 1984/1995 Measure Integrated ECM for final energy saving Integrated ECM for heating energy saving bln. kwh/a % final energy Gas, bln. m 3 /a 114,9 29,8 12,3 98,5 25,5 10,5 Heating energy indicators corrected by Heating Degree Days factor Ukraine/Germany HDD = 1,17 (Ukraine/Serbia HDD = 1,42)
position of Ukraine's statistical-average multi-story building in the EU energy performance certification system Comparative analysis of return on investment in total building thermal renovation (for 20 years) ECM Tariff Discount rate Initial investment Energy saving Euro/Gcal Euro/MWh % Euro Euro Walls 39 33,5 2% 56 000 76 525 Roof 39 33,5 2% 22 000 29 079 Windows 39 33,5 2% 54 000 29 079 Total: 132 000 134 683 ECM Tariff Discount rate Initial investment Energy saving Euro/Gcal Euro/MWh % Euro Euro Walls 129 110,9 20% 56 000 75 381 Roof 129 110,9 20% 22 000 28 645 Windows 129 110,9 20% 54 000 28 645 Total: 132 000 132 671 Average tariff for heating Country Euro/Gcal Euro/MWh Germany 69,8 60,0 Ukraine 30,0 25,8 Average heating energy performance indicator for multistory buildings in Ukraine
Typical Life cycle cost indicators for residential 4 Sectional 5 floors building in Ukraine Analysis of return on investment in building exterior walls thermal renovation 10000 (Euro) Net cash flow 0-10000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Years PV cash flow -20000 Bankable project curve -30000-40000 -50000-60000 Population solvency curve NPV cash flow : DiscR=2%; IRR=2,1%; Tariff=30 /Gcal; Simple payback=15,6 yrs; Disc. payback=20 yrs NPV cash flow : DiscR=20%; IRR=20,1%; Tariff=98 /Gcal; Simple payback=4,8 yrs; Disc. payback=19 yrs
5000 Typical Life cycle cost indicators for residential 4 Sectional 5 floors building in Ukraine Analysis of return on investment in building roof thermal renovation (Euro) Net cash flow 0-5000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Years PV cash flow -10000-15000 -20000-25000 Population solvency curve Bankable project curve NPV cash flow : DiscR=2%; IRR=2,1%; Tariff=30 /Gcal; Simple payback=16,1 yrs; Disc. payback=20 yrs NPV cash flow : DiscR=20%; IRR=20,2%; Tariff=100 /Gcal; Simple payback=4,8 yrs; Disc. payback=19 yrs
5000 0-5000 -10000-15000 Typical Life cycle cost indicators for residential 4 Sectional 5 floors building in Ukraine (Euro) Analysis of return on investment in windows replacement 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Years Net cash flow PV cash flow -20000-25000 -30000-35000 -40000-45000 -50000-55000 Bankable project curve Population solvency curve NPV cash flow : DiscR=2%; IRR=-5,0%; Tariff=30 /Gcal; Simple payback=39,5 yrs; Disc. payback=45 yrs NPV cash flow : DiscR=20%; IRR=20,5%; Tariff=250 /Gcal; Simple payback=4,7 yrs; Disc. payback=18 yrs
Energy efficiency Potential of Ukraine ESCO market in buildings thermal renovation Financial aspects Measures Tariff for heating Heating area Specific initial investment Initial investment needed Specific energy saving Annual energy saving Euro/MWh mln. m 2 Euro/m 2 bln. Euro Euro/m 2 bln. Euro Integrated ECM for heating energy saving 33,5 820 41,25 33,86 2,57 2,11 110,9 820 41,25 33,86 8,52 7,00 Energy efficiency in buildings it is investments, technologies, regulations, and behavior of the inhabitants Energy saving potential allocation for residential and public buildings in Ukraine Thermal insulation Up to 60% Engineering solutions Up to 28% Lightening Up to 7% Solar heating Up to 5%
Part II Ukraine ESCO experience in Energy efficiency in buildings
ESCO history in Energy efficiency in buildings in Ukraine The history of ESCOs and Energy Performance Contracting (EPC) in Ukraine started in 1996, when a group of 40 Ukrainian energy professionals successfully went through the USA Association of Energy Engineers (AEE) one week training and examination, and received AEE certificates in Energy Management. Two years later, under the USAID Technical Assistance Program were established and equipped first 10 ESCOs in Ukraine. The history of ESCOs and EPC in buildings started in 2001. Since then, with the help of grants provided by countries of the European Union there were realized more than 100 projects in improving EE in Ukrainian Communal Heating Companies and in thermal renovation of residential and public buildings in all regions of Ukraine. All these projects were funded through International Technical Assistance grants and aimed to prepare and demonstrate ESCOs schemes and EPC mechanisms adapted for Ukraine, where energy saving investments should be repaid through the savings on future energy bills. Main results: All this projects were successful and demonstrated in practice know-how in energy savings (up to 40% of heat energy), in attraction of owners investments for capital repairs and thermal modernization of multi-apartment residential buildings and in taking of commercial bank loans.
basic model used for demonstration of ESCO possibilities in EE financing in Buildings in Ukraine Local & State Budgets 20-60% Subsidies and compensation payments International Grants (Technical Assistance) Housing and communal services producers 1 2.. n Providing guarantees (40-80) % Energy Services Company M&V Up to 10% Finance & Investment Institutions Subsidies and compensation payments Up to 20% E P C Condominium Up to 20% EE services producers 1 2 n.. Up to 25% - percent of investment made by the participant Condominium - association of co-owners of apartment building EPC - Energy Performance Contracting M&V Measurement and Verification
circle of political and financial obstacles in Ukraine to realize more than 40 billion Euro market potential of EE in Buildings Start: Go to Start 1. Relatively low income and ability to pay for services of inhabitants in Ukraine 5. Lack of effective incentives and programs of the government and business to stimulate EE The problem is: such scurry in circle satisfies for different reasons of all market players, except for ESCOs 2. Fixed by state regulator tariffs for heating that do not compensate real costs of primary fuel and energy resources 4. Numerous delays in repayments for loans, high banks interest rates 3. Inefficient building owners, especially in multi-apartment buildings, where each apartment owner is independent of the others
Part III ESCOs in Ukraine current status and perspectives
ESCOs in Ukraine current status There are more than 30 ESCOs are able to effectively work in improving of EE in residential and public buildings of Ukraine. Main of them are: ESCO-Center, Central ESCO, UkrESCO, ESCO Energy Consult in Kiev; Ecological Systems in Zaporozhe; Municipal ESCO, Energy Engineering ESCO in Dnepropetrovsk; Systemotechnica ESCO in Odessa; ESCO-Rivne, Municipal ESCO in Rivne; Ekothermoengineering ESCO in Kharkov; Municipal ESCO in Kherson. Since 2001, they have implemented more than 100 ESCO projects in buildings in Ukraine under EC and USAID programs amounting to 15 mln. euro, and in addition to it, amounting to 5 mln. euro without such support. Regulatory framework in the energy efficiency in Ukraine is 7 Laws, more than 250 regulations and normative documents, 50 national and 60 interstate standards: Law of Ukraine On Condominiums ; Law of Ukraine On Housing and Communal Services ; Law of Ukraine On Privatization of the State Housing Stock ; Law of Ukraine On Energy Conservation ; Law of Ukraine On Investment ; Law of Ukraine On National Program on Housing and Municipal Economy Reform and Development for 2009-2014 ; Draft Law of Ukraine On Energy Efficiency in Buildings ; Resolutions of the Cabinet of Ministers of Ukraine: On Procedure of the Use of Funds Allocated in the State Budget for Implementation of Pilot Projects in the Housing and Communal Sector ; Program for Increasing Energy Efficiency in Building for 2010-2014.
Perspective ESCO model for financing EE in Buildings Local & State Budgets Subsidies and compensation payments EPC EPC Housing and communal services producers 1 2.. n Providing guarantees Interest rates compensation Cross-boundary ESCO M&V EPC International and Local Finance & Investment Institutions E P C EPC International and Local EE services producers 1 2.. n Subsidies and compensation payments Association of condominiums
Capabilities of cross-boundary EPC cooperation ESCO with HCSP and EESP companies in financing EE in Buildings Production Volume of Heat Energy by Housing and Communal Services Company (HCSP), c. u. 0 2 3 5 7 9 10 12 14 15 17 EESP Production Capabilities Enlargement Through Cross-Border Cooperation with HCSP Production Capabilities Enlargement After ECM in HCSP Frontier of Energy Savings Capabilities Before ECM in HCSP Production Volume of EE goods (Thermal Insulation) by EE Services Company (EESP), conventional units 19 21 22 24 26 27 29 31 33 34 20 18 16 14 12 10 8 6 4 2 0
Conclusions, recommendations & proposals: ESCO as a key player to overcome barriers in realization of EE potential in Buildings It is necessary to stimulate using the ESCO approach to solve the problems in EE in buildings in Ukraine as ESCO works and services are guaranteed paid from energy savings. Energy Performance Contracting (EPC) is allowable instrument for current Ukraine situation that should be used to retain energy cost savings in the state and locals multi-annual budgets in order to pay related ESCO works and services. International cooperation between ESCOs should be activated for attracting investments into EE financing in buildings under EPC. Municipal and commercial financing should be obligatory attracted. Possibilities to issue a municipal guarantee to ESCOs should be approved. Competitive and functional tendering should be provided. It is needed to raise awareness of public and banking sectors on the development of EE ESCO projects in buildings.
Thank you for attention!!! Alexander Novoseltsev E-mail: anovos@i.com.ua