1. Energy Efficiency in Kosovo Jas Singh Senior Energy Efficiency Specialist Energy Unit, Europe and Central Asia Kosovo Donors Conference “Sustainable Energy Development in Kosovo” Pristina, May 14, 2013

2. Background 2

3. Importance of EE to Kosovo  Energy security  Reduces energy imports (Kosovo imported 572 GWh in 2012)  EE is cheapest, cleanest domestic energy resource (€1 invested in demand-side EE avoids over €2 in supply-side investments)  Enhances economic growth  Reduces large public expenditures in energy and energy subsidies, creating fiscal space for other development priorities  Increases industrial competitiveness (EE reduces input costs)  EE pays off – recent German study found €1 in EE resulted in €4-5 in benefits (increased tax revenues, lower costs, reduced unemployment/ subsidies) and creates 15-19 jobs per €1 million investment  Reduces environmental and social impacts of energy sector  Positive health impacts from reduced air pollution  Often least-cost way to reduce local and global air pollution  Helps mitigate social impacts of tariff reforms 3

4. Potential for EE in Kosovo  Energy Use by Sector 4 Source: MED, Energy Balance 2012

5. Potential for EE in Kosovo  9% indicative target set for NEEAP 2010-2018  2.2% total savings between 2010-2012  3% target set for 2013-2015 5 Source: *1st NEEAP and 2 nd NEEAP (first draft); ** Report on the implementation of the 1st NEEAP, 2010-2012, Kosovo Sector 2012 (ktoe)2018 (ktoe) Target* Savings from measures** Target* Estimated savings from measures** Residential12.4028.0530.6446.98 Services9.309.30 3.8612.2618.91 Industry7.90n/a24.8414.00 (TD) Transport1.401.40n/a24.1512.00 (TD) Total31.0031.9291.89 Savings as % of base consumption 3%3.1%3.1%9%9.0%9.0%

6. Potential for EE in Kosovo  38 EE measures included in 1st NEEAP period  Concentrated in the residential and services sectors (public sector only)  Includes select measures in the industrial, transport, agricultural sectors which account for 53% of energy use  EE potential for building sector in Kosovo is large  World Bank Institute (WBI) study found 47% of final energy consumption attributed to building sector and has an energy saving potential of 30-40%, 250 GWh/year  €1.37 billion in investment needed for building sector (over 80% of investment needs are in the residential sector)  Simple payback period for municipal and central government buildings is 4-5.3 years 6

7. Key Findings of WBI Study – Building Sector 7 BUILDING SECTOR Total Area (million m 2 ) Total Area (%) EE Potential (ktoe) EE Potential (% of primary energy supply) I. Residential34.7276.9171.747.86 II. Municipal2.365.216.770.77 III. Public Central0.180.43.600.16 IV. Private & Commercial7.8617.446.952.15 TOTAL45.12100.0239.0510.94

8. Key Findings of WBI Study – Public Buildings 8 MUNICIPALITY AND CENTRAL PUBLIC BUILDINGS Building Sector Total Area (m 2 ) Energy Consumption (ktoe) Energy Expenditures (€ m.) Energy Savings (€ m.) I. Public Municipality2,360,00036.6933.9615.52 Schools1,690,00023.4821.7310.09 Health Buildings393,0008.077.473.10 Other Buildings277,0005.144.752.33 II. Public Central182,0007.346.793.33 Central Hospitals46,0002.202.041.03 Central Government136,0005.144.752.30 TOTAL2,542,00044.0340.7518.85

9. World Bank Global Experience in Energy Efficiency 9

10.  Lack of awareness, high discount rates  High upfront and project development costs  Lack of ability to pay incremental cost  Low EE benefits relative to other costs  Perceived risks of new technologies/ systems  Concept of EE is “virtual” – cannot see  Mixed incentives  Behavioral biases  Lack of credible data  High cost of financing  High project development costs  Limited demand for EE goods/services  Diffuse/diverse markets  New contractual mechanisms (ESCOs)  Limited technical, business, risk mgmt. skills  Limited financing/ equity  New technologies and contractual mechanisms  Small sizes/widely dispersed  high transaction costs  High perceived risks –not traditional asset-based financing  Competing investment opportunities with higher return, lower risk projects  Over-collateralization  Behavioral biases  Energy pricing and collections  Procurement policies favor lower cost  Import duties on EE equipment  Unclear or underdeveloped EE institutional framework  Lack of appliance standards and building EE codes, lack of testing, poor enforcement  Limited and poor data Policy / Regulatory Equipment/ Service Providers End UserFinanciers Barriers to Energy Efficiency Investments 10

11. Typical EE Financing and Delivery Models Model / SectorIndustrialCommercialPublicResidential Utility Demand- Supply Management (DSM) Energy service companies (ESCOs) Commercial EE financing Public EE financing Market transformation Incentives, subsidies, grants Capacity building, awareness raising, education 11

12. Choosing the Right Instrument In public sector, for example, there are many options… Market Maturity Commercial Financing Public Financing Advanced commercial financing (ESCOs) Commercial financing (loans/bonds) Partial credit or risk guarantees Dedicated credit lines EE funds/Public ESCOs Budget financing with budget capture Budget financing/Grants + Easy to implement, can directly finance municipalities – Institutional sustainability is questionable + Can be structured to address financing needs and evolving capacity of municipalities – challenging cost coverage from revenues + Leveraging of private funds – needs municipalities/ ESCOs that have borrowing capacity + Easy to implement, can directly finance municipalities – Sustainability is questionable + may scale up commercial financing – needs mature banking sector and eligible borrowers; poor track record in several countries + can address financing issues – needs municipalities with strong borrowing capacity + can address financing and implementation issues and build ESCO capacity – Needs a mature market with operating ESCOs 12

13. Lessons EE is resource-intensive and requires a long-term focus Sector reforms have been crucial to create enabling environment and proper incentives for EE EE governance is critical to ensure strong policy/legal frameworks are in place and implementation is effective (e.g., time-based targets with clear accountability) Development of efficient delivery mechanisms (e.g., credit lines, ESCOs, utility programs, labeling schemes) are more important than technology Financing is available, but not always accessible and affordable Access to credible data and information, incentives, linking to other co-benefits (i.e., improved comfort) are also needed Challenges Cost reflective pricing and universal metering reforms remain slow EE investment needs are massive requiring increased focus on leverage Emerging EE agencies are politically weak and under-resourced Credit lines for industrial and commercial sectors need to act as market catalysts Need for more robust, scalable and sustainable models for EE in public and municipal buildings Region has underdeveloped energy service/ESCO markets, weak legal and regulatory frameworks, mixed track record EE cuts across all sectors, requiring better cooperation with urban, water, transport, agriculture, health, education sectors Lessons Learned and Remaining Challenges 13

14. World Bank Experience with EE in Western Balkans  Recently implemented and planned projects total ~US$127 million for EE in public buildings  Energy savings typically 30-45% per building, payback periods ~6-8 years  Substantial co-benefits (improved comfort, urban renewal, public awareness, student education)  Willingness to co-finance  Lessons learned:  Limited replication of donor pilots and grants without sustainable funding mechanisms in place  Government project units orphaned after projects, loss of technical, implementation capacity  High energy cost savings means that projects can and should repay upfront investments  Difficult to scale-up; 20-30 buildings/year average 14

15. World Bank Experience with EE in Western Balkans  Recommendations going forward  Need to develop centralized, sustainable institutional structures to provide public financing and allow donor funds to revolve, capacity to be retained and sustained  Need variety of instruments to serve both the creditworthy and poorer municipalities  Need to boost leverage—e.g., pooling of donor funds, requirements for co-financing, bring in some commercial financing  More aggressively foster ESCOs and commercial financing structures  Need to better bundle buildings to scale-up impacts  Need to shift from project-based planning to programs with an emphasis on achieving macro goals (e.g., NEEAP targets)  Need to better link policy and regulatory measures with project- level investments, need enforcement pressures to encourage investments 15

16. Identifying the Gaps 16

17. Key Policies and Actions Taken by Kosovo 17 Law on Energy Efficiency Obligates MED and municipalities to prepare EE action plans; MED to set up EE Agency and fund EE initiatives Kosovo Energy Efficiency Agency Established in April 2012 to implement the Energy Efficiency Law NEEAP 2010-2018 As committed to under Energy Community Treaty, indicative targets for EE savings set at 9% by 2018; updated every 3 years Law on Energy Approved October 2010: Determines EE targets, encourages advanced metering systems, provides EE policy framework and subsequent implementation Law on Electricity Approved October 2010: Defines functions electricity market components and prepares for market opening (in line EU requirements) Law on the Energy Regulator Approved in 2010: ERO currently managing transition from single year to multi year tariff setting methodology Law on Construction Important features related to energy performance of buildings: Building code norms for new and renovation works, implementation of EE measures, certificate of compliance with EE measures Energy Efficiency Measures Funding MED support for measures defined in KEEP (seeking financial support from public budget, international organizations and donors) Municipal Energy Efficiency Plans Under Law on EE, Municipal Energy Offices required to develop Municipal EE Plans and Implementation Progress Reports (GIZ working with KEEA on 10 plans under EU funded project) Secondary Legislation Series of secondary legislation adopted (e.g., appliance labeling, energy auditing, etc.)

18. What are Donors Doing? 18 Public Sector Industrial / Commercial Residential KfW  Study and Implementation of EE measures in municipalities (30 buildings; EU and KfW financed)  Support to Pristina DH system, cogeneration  Pursing promotion of residential EE through bank loans EU  Grant-funded municipal EE project (63 schools, 2 hospitals)  Assistance to MED (staff training, NEEAP) (completed)  Public awareness campaign for EE (completed)  TA to update, monitor and evaluate NEEAP EBRD  Creation of credit line in SME/ buildings sector  Assessing credit line (microloans) for households GIZ  Modernization of municipal buildings (completed in select municipalities)  Public lighting modernization plan developed in several municipalities World Bank  Study and implementation of EE in public buildings (centrally-owned)  Review of financing options for public EE (WBI)  Review of financing options for residential EE (WBI)

19. 19 Framework for Successful Energy Efficiency Programs Dedicated entity with EE mandate Clear institutional roles/accountability Inter-ministerial coordinating body Assignment of roles for monitoring and compliance enforcement Authority to formulate, implement, evaluate and report on programs Tracking on progress for EE targets Institutions Overarching EE legal framework (EE Law) Cost-reflective energy pricing Codes/standard w/ enforcement mechanisms EE incentive schemes w/ funding sources EE targets by sector Public budgeting/procurement encourages EE Policy and Regulations Database on energy consumption Industrial and building stock Information center/case study database Database of service providers, EE technologies, equipment providers Broad, sustained public awareness Appliance labeling Information Commercial bank lending (credit lines, guarantees) Cashflow-based EE financing Commercial ESCO financing Public sector EE financing Residential home/appliance credit Equipment leasing Finance Energy auditor/manager training and certification programs Private sector training programs (banks, ESCOs/EE service providers, end users) EE project templates (audits, M&V plans, EPC bidding documents, contracts) Energy management systems developed Technical Capacity

20. What are the Remaining Gaps? o Develop additional secondary legislation, rulebooks and enforcement mechanisms o Enhanced EE incentive schemes for private sector end users, with dedicated funding sources o Enabling environment for EE in public sector (procurement, budgeting) o Ongoing institutional capacity enhancements for KEEA o Develop program functions within KEEA (e.g., program formulation, implementation, evaluation, monitoring/tracking) o Enhance government capacities for enforcement o Creation of suitable public financing scheme for municipalities (e.g., EE revolving fund) o Industrial/SME and residential EE credit schemes o Cashflow and ESCO financing bank product development 20 Institutions Policy and Regulation Financing o Database of end users, consumption information o Sector and sub-sector EE potential and market studies (e.g., transport, industry) o Information center (e.g., case studies, EE projects, EE service providers, technologies/equipment suppliers) o Broad, sustained awareness campaigns o Develop/Implement certification scheme for energy auditors, energy managers o Development of project guides, ESCO bidding/contract models, M&V protocols, audit/baseline templates o Sustained training to private sector (end users, ESCOs, banks) o Platforms to share implementation experiences, project information o Increased capacity building with municipalities for EE planning, implementation, reporting Information Technical Capacity

21. Addressing the Gaps 21 Government of Kosovo: Develop and adopt needed secondary legislation, new EE Directive Improve district heating supply, DH metering and billing, judicious DH system expansion Seek measures to continually move towards cost reflective pricing Create suitable public sector financing mechanism (e.g., EE revolving fund) Develop programs, incentives for all sectors for EE, particularly for households Assess EE savings potential for additional sectors (e.g., transport, industry) Launch broad, sustained raising of public awareness on EE Strengthen KEEA Donors: Support development additional legislation, rulebooks based on international best practices Help to design and implement appropriate financing and incentive schemes Assist to identify investment needs for total EE potential and by sector Support capacity building with KEEA and municipalities Develop database on end users, consumption Help create database of service providers, EE technologies, equipment providers Provide private sector training programs (banks, potential ESCOs/EE service providers, end users) Share EE project templates (audits, M&V plans, EPC bidding documents, contracts)

22. Thank you 22