Energy Efficiency in District Heating and Joint Implementation

Mark van WeesCAP SD Energy and Climate Consultants

Moscow, 21-23 August 2006

District Heating Market Share

Source: IEA

Energy Efficiency in District Heating

Source: IEA

Performance indicators

1. Promotion of energy efficiency in district heating systems in the EU Standards and certification

– Regulation of boiler efficiency– Energy audits and certification

Benchmarking– Energy efficiency benchmarking in tariff system– Voluntary programmes

Tax incentives– Investments in energy efficiency

R&D Best practice programmes

– Benchmarking, technical expertise, auditing Financing (by governments)

– Project preparation grants and investment subsidies– Guarantees– Carbon financing

Share of cogeneration

Source: IEA

2. Promotion cogeneration in the EU

Fair market conditions (cost sharing between electricity and heat)

Bonus payments and feed-in tariffs Subsidies/grants for new capacity Tax incentives

– Investments in energy efficiency R&D Best practice programmes

– Benchmarking, technical expertise, auditing Financing

– Project preparation grants and investment subsidies

– Guarantees– Carbon financing (Joint Implementation)

3. Promotion of energy efficiency in end-use of heat (buildings) in EU Metering and control Building energy codes Energy audits and certifications Information campaigns Tax incentives

– Investments in energy efficiency R&D and best practice programmes

– Benchmarking, technical expertise, auditing Financing

– Project preparation grants and investment subsidies

Joint Implementation

ERUs

Project emissions

Baseline emissions

2008 2012

time

Ton

CO

2e/y

r

Examples JI Projects in District Heating (approved and contracted)

Bulgaria (cogeneration)– CHP Portfolio: gasturbine + gasengines ( replacing

heat only boilers)– Extension DH network

Romania (boiler efficiency)– Increase boiler efficiency at coal fired CHP plant

Romania (reduction heat losses)– Replacement secondary distribution network– Replacement heat exchangers in substations

Poland (renewable energy)– Feed-in geothermal energy in district heating

replacing coal-fired

Energy efficiency with the context of district heating

reform

Source: IEA

Carbon Market 2004-2005

0

50100

150200

250300350

400

Mto

n

2004 2005

JI

CDM

ETS

Source: PointCarbon “Carbon 2006”

NEDO

Worldbank

Finland

Belgium

Netherlands

KfW

JCF-JBIC

ECF

Austria

TGF

EBRD

Denmark IFC

Sweden

Standard Bank

Categories of Buyers1. Government: buy for Kyoto compliance / risk

averse / inflexible in transaction / passive approach to project identification / tenders

2. Private sector: buy for compliance EU ETS / some flexibility in transaction / medium risk / direct project-by-project approach in purchasing

3. Banks/funds/traders: buy for trading / can serve different buyers / balancing risk versus profit / flexible transactions and price structures / active approach to project identification

Two typical buyers in Russia Passive buyer:

– Now waits for certainty on JI infrastructure (LoA)– Limited presence in Russia– New proposals in Russia on the shelf or treated with

care– Examples: Belgium, Netherlands

Active buyer:– Invests in new project identification and development– Willing to pursue (conditional) transactions– Strong presence in Russia (agents, existing network)– Examples: EBRD, Denmark, traders

Differences between buyers?

Interest in Russian market Volume to be purchased Preferred/eligible projects Risk profile Price and other transaction terms Flexibility in contract terms Support in project development

– financial, technical, moral Combination with project finance

International Financing Schemes offering project+carbon

financing World Bank (IFC) European Bank for Reconstruction and

Development (EBRD) European Investment Bank (EIB) Nordic Environment Finance Corporation

(NEFCO)

+ Private sector schemes

How to select a buyer? Status of your project (initial idea or fully

developed)? Your capacity in project development?

Required technical and financial support? Small-scale project? Others? Combination with project financing

necessary? Risk profile project and host company? Financial objectives (revenues, price,

upfront payments, etc.)?

Marketing your project

Market research and orientation Shortlist of buyers Non-exclusive initial discussions with

buyers Exclusivity and compensation preparation

costs Preparation documentation (PDD) Negotiations on transaction

Emission Reduction Purchase Agreement

Finding the right buyer

New buyers still arrive Others may change their strategy in

Russia Some may even leave again New mechanisms in the future

Study the market and shop around!

Conclusions

Increasing energy efficiency in district heating is important for economic, social and environmental reasons

Potential JI is substantial and demand is still growing

Decision of the Russian government on JI badly needed

Active involvement of the district heating sector in the national and international debate on JI is very important (e.g. National Program) !