Dr George Chavdarov Bulgarian Energy Efficiency Fund EnEffect Sofia, Bulgaria Energy Efficiency Fund as a Means for Financing Heating Network Improvements Market and Technology Developments in Small Scale Heat Generation International Workshop Baku, Azerbaijan, October 20, 2005

District Heating Systems in Bulgaria 21 commercial DH companies are concentrated mainly in the district-center cities 20 of these companies were 100% state- owned The biggest company the District Heating Sofia SP JSCo. was 100% municipal property. Now it is 70% municipal property and 30% state-owned Energy Efficiency Fund as a Means for Financing Heating Network Improvements

District Heating Systems in Bulgaria The Strategy for Development of DH during the period takes into consideration the recommendations of the World Bank – “to launch a procedure for privatization and/or transfer of property rights on the DH companies, for which budgetary support will be ceased before the year 2004, to the local authorities” Energy Efficiency Fund as a Means for Financing Heating Network Improvements

District Heating Systems in Bulgaria In 2004 the District heating companies in the cities of Bourgas, Pleven, Veliko Tarnovo, Gabrovo, Lovetch, Pravetz and Rousse are offered for privatization The District heating companies in the cities of Vratza, Kazanlak, Lozniza, Razgrad and Yambol have been sold already Energy Efficiency Fund as a Means for Financing Heating Network Improvements

District Heating Systems in Bulgaria Energy Efficiency Fund as a Means for Financing Heating Network Improvements DH in Gabrovo Investment package “Residential buildings” Investment package – “Substations” Investment package – “Distribution network” Example of Energy efficiency renovation of District Heating and Heating End-Use

Instruments for financing Energy Efficiency Fund as a Means for Financing Heating Network Improvements Practical experience

Regular bank loans Starting with interest rates of 16-18% Rapid growth of number of project, when interest rate reaches of 6-10% Current interest rate 6-8% and less A growing number of banks offer credits for EE projects A growing number of entities, including power plants borrow bank credits under market conditions Energy Efficiency Fund as a Means for Financing Heating Network Improvements

General municipal bonds Municipalities of Varna, Sliven, Svishtov, Dobrich Energy Efficiency Fund as a Means for Financing Heating Network Improvements The example of Varva (€ 3 mln): - Street lighting project - International credit rating - Performance risk taken by the municipality - Performance based calculations made as for revenue bonds

Leasing equipment (capital/financial leasing) The example of Dobrich: Energy Efficiency Fund as a Means for Financing Heating Network Improvements About 30 schools and kindergartens equipped Budget restrictions avoided Fixed payments / interest rates Repayment period of 3 years Cost raised due to the risk coverage (if buying up rejected)

Energy Service Companies (ESCOs) Energy Efficiency Fund as a Means for Financing Heating Network Improvements Financing of third party – usually a commercial bank Repayment depends on the project performance The ESCO guarantees the minimal performance ESCO pays the difference if savings are below the estimated minimum Combination of performance contracting with shared savings contracting Shared savings contracts / Performance contracts

Energy Service Companies (ESCOs) The examples of Rousse and Sofia: Energy Efficiency Fund as a Means for Financing Heating Network Improvements Various municipal buildings / schools Third party financing The ESCO company takes the performance risk The municipality pays fixed amounts Difficulties faced in Rousse and Sofia - financial and technical

Energy Service Companies (ESCOs) Energy Efficiency Fund as a Means for Financing Heating Network Improvements Contract for provision of heat Typically long-term contract – years ESCO ensures necessary maintenance and modernization of the heating system Customers pay fixed (agreed) fee for the heat consumed Applied for small hotels / applicable for municipalities Heating contract / Chauffage contract

Carbon funds / Kyoto instruments Energy Efficiency Fund as a Means for Financing Heating Network Improvements District heating modernization in Sofia and Pernik World Bank Prototype Carbon Fund Joint Implementation District Heating modernization in Rousse (Japanese investors) Gas distribution project for Gorna Oriahoviza, Veliko Tarnovo and Liaskovetz (Dutch investors) Raising interest of foreign investors

Other financial schemes Energy Efficiency Fund as a Means for Financing Heating Network Improvements Joint venture in the city of Stambolijski What municipalities could offer to investors Equity financing Financing by utilities Possible financing by the regional electrical distribution companies (municipal projects under negotiations)

Special funds Energy Efficiency Fund as a Means for Financing Heating Network Improvements EE projects in municipalities EE projects in industries National Environmental Fund (established under a special low)

Special funds Energy Efficiency Fund as a Means for Financing Heating Network Improvements National Eco Trust Fund (established under a special low) Gazification projects in municipalities Industrial EE projects

Special funds Energy Efficiency Fund as a Means for Financing Heating Network Improvements To soften the consequences of the decommissioning of the first reactors of the Kozloduy nuclear PS To encourage energy efficiency measures and the use of RES Credit lines from EBRD to several Bulgarian banks Volume: € Period: 5 – 7 years Technical assistance Kozloduy Fund / EBRD (established by and agreement with the EU)

Energy Efficiency Fund as a Means for Financing Heating Network Improvements Market based interest rate Subsidies of: - 7.5% for energy efficiency projects - 20% for RES projects Types of credit lines: - for public (municipal) buildings - for residential buildings Kozloduy Fund / EBRD Special funds

Energy Efficiency Fund as a Means for Financing Heating Network Improvements Main sponsors: GEF / World bank, Bulgarian government / donors / public-private partnership Independent revolving self-financing instrument, created by the EE Act (2004) Based on market competitive conditions Co-financing / partnership with other financing institutions Bulgaria Energy Efficiency Fund (BEEF) (established by a special law)

Special funds Energy Efficiency Fund as a Means for Financing Heating Network Improvements Financial products: - loans, - partial guarantees, - technical assistance for project development Bulgaria Energy Efficiency Fund (BEEF)

Special funds Energy Efficiency Fund as a Means for Financing Heating Network Improvements Types of projects: - industrial projects - building projects - district heating projects - municipal end-users’ projects - other end-users’ projects Bulgaria Energy Efficiency Fund (BEEF)

Special funds Energy Efficiency Fund as a Means for Financing Heating Network Improvements Requirements to the projects: - More than ½ measurable savings - Implementation of proved technologies - Project size: € € Project owners provide over 10% own financing - Payback period: years Bulgaria Energy Efficiency Fund (BEEF)

Special funds Energy Efficiency Fund as a Means for Financing Heating Network Improvements Bulgaria Energy Efficiency Fund (BEEF) Donors’ assembly Market players: FI / ESCOs / End-users MEER WB GEF Private donors BEEF Fund management Econoler International (Canada) / EnEffect (BG) / Elana (BG) TALoansGuarantees Other foreign donors

Lessons of the implementation of various financial instruments for energy efficiency projects in Bulgaria Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Local capacity building in Bulgaria Training of managers and specialists on: -energy auditing -project development -project financing Energy Efficiency Fund as a Means for Financing Heating Network Improvements

Competition or Collaboration Energy Efficiency Fund as a Means for Financing Heating Network Improvements Aggressive marketing policy of the BEEF Fund Management Technical assistance for project identification and development Best possible credit / guarantee policy, corresponding to the real market conditions Strategic cooperation with other financial institutions to ensure co-financing of projects How could BEEF survive?

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