Innovative Mechanisms for Financing Municipal Energy Efficiency

Programs and Projects

Eupatoria, 9 June 2004Dr Zdravko GenchevEnEffect, Bulgaria

Center for Energy EfficiencyThe experience of Bulgaria, compared to EU and US practices

The need of municipal energy planning in transition countries

Functions of municipalities change and their influence on energy sector

The need of energy efficiency improvementThe need of investments in energy supply

and demand sectorThe need of integrated planning of energy

resourcesThe lack of capacity and data for IRP

New functions of municipalities in local energy management

Municipality as a consumer of energy Municipality as an energy producer and

energy provider (distributer)Municipality as a regulator and an investor in

the municipal energy sectorMunicipality as a motivator to improve

energy efficiency

Prerequisites for an effective municipal energy planning

Political will of local authorities to introduce energy management on the local level

Local capacity to develop and implement a municipal energy program, based on IRP

Municipal energy database Instruments to manage, finance, monitor and

evaluate a municipal energy program

Municipal energy planning processMunicipal energy planning process

Municipal energy information system (MEIS)

Building of local capacity

Developmentof the municipal energy program

Implementation of the municipal energy program

Decision for Decision for MEISMEIS

ІІ ІІ political decisionpolitical decision

ІІІ ІІІ political decisionpolitical decision

І І political decisionpolitical decision

Selection of planning approach and determination of the goals

Feed

bac

k

Preparation

Development

Implementation

Factors that lead to a decision to invest in energy efficiency

Significant burden of energy expenses on municipal budgets

Availability of cheap and easy to access credit resources

Availability of cheap energy saving technologies and equipment

Guarantees that achieved savings will be secured in the municipal budget

What do specific financing mechanisms offer?

Flexible schemes for financing of energy efficiency projects

Financing investments under conditions different from the regular banking practices

Unification of multiple financing sources thus distributing and reducing the risk

Financing mechanisms, applicable in Bulgaria during the transition

Financing by bondsLeasing financingEnergy Service companies (ESCOs)Vendor (commodity) creditsPublic-private partnership (PPP)

Financing by bonds (1)

Relatively long period of bond emission preparation

Emission prospect should be developedand approved by the State Commission on Securities

Investment agent should be selectedSuccessful completion of subscriptionIn case of failure bonds should be bought

back by the municipality together with the respective interest

General Obligation BondsThe emission is recorded in the municipal budget and the whole risk is taken by the municipality

Revenue BondsBonds are related to the project results and depend on their profitability

Financing by bonds (2)

Leasing financing (1)

Avoid budget restriction of investment expenses

Leasing installments are equal and defined at fixed interest rate

Leasing period may last 3-5 yearsLeasing raises the purchase expences due to

the risk of final pay back denial

Leasing financing (2)

Financial leasingKnown as capital leasing, conditional purchase contract or installment purchase contract

Operational leasing At the end of the leasing period the lessee may obtain the equipment ownership for its real market price

Leasing financing (3)

Municipal leasingFinancial leasing under benign conditions – applied mainly in the US

Energy Service Companies (1)

The ESCO which implements the project ensures the investment and takes the whole investment risk

The owner of the project site (the municipality) repays the capital investments on the account of the achieved savings

Energy Service Companies (2)

The owner of the project site (the municipality) is not committed to the implementation of the project

After the completion of the contract the equipment ownership is transferred, free of charge, to the owner of the project site (the municipality)

Energy Service Companies (3) Energy Performance Contract - 1

The owner of the project site (the municipality) finances the energy efficiency measures by a loan from a third party (in most cases commercial banks) or signs a leasing contract for the project equipment

The ESCO guarantees the savings in result of the project implementationand takes all related risks

Energy Service Companies (4) Energy Performance Contract - 2

In case of savings lower than contracted, the ESCO refunds the difference to the owner of the project site (the municipality)

Energy Service Companies (5)Pay off Savings Contract

Pay off is a subcathegory of energy performance contract

The payment schedule depends on the savings level

The higher the savings – the quicker the pay off

Energy Service Companies (6) Shared Savings Contract

The ESCO finances the project by its own means or by a third party loan

The ESCO is responsible for the loan borrowing and repay and takes all related risks

The ESCO guarantees that the project owner (the municipality) will never pay more than the amount of the energy bills agreed in the contract

Energy Service Companies (7) Chauffage contract (heating contract)

Long-term (20-30 years) energy service contract, under which heat supply is the subject of the purchase

The ESCO ensures the necessary modernization and maintenance of the heating systems on its own account

The project owner (municipality) pays the consumed energy in accordance with the contracted price

Public-private partnership (1)Joint Ventures with Private Enterprises

The municipality disengages itself from the role of investor

The private sector ensures bank financing and takes all corresponding risks

The private companies provide the necessary capacity and qualified experts

The municipality participates with long term assets, which usually do not have significant market value out of the project

The municipality preserves its key role in the management of the joint venture

Public-private partnership (2) Joint Ventures with Private Enterprises

Other financing mechanisms

Equity financingFinancing of power distribution

companiesFinancing of WB Prototype Carbon FundFinancing through JI (Joint

Implementation) projects (Kyoto Protocol)

Room for cooperation in local energy planning and financing

Results of the energy efficiency demonstration zone project in Gabrovo

Experience of the Bulgarian Municipal Energy Efficiency Network EcoEnergy

The role of the Regional Network for Efficient Use of Energy and Water Resources (RENEUER) in SE Europe

Cooperation within UNECE EE21 project

Contacts:

Center for Energy EfficiencySofia, Bulgaria

eneffect@mail.orbitel.bgwww.eneffect.bg

Thanks for your attention