Western Balkans Sustainable Energy Direct Western Balkans Sustainable Energy Direct Financing FacilityFinancing Facility

Taylor-made financing for small Renewable Energy Taylor-made financing for small Renewable Energy and industrial Energy Efficiency projectsand industrial Energy Efficiency projects

June 2011June 2011

ContentContent

Introduction to the WeBSEDFF

Eligibility and Operational Arrangements

CO2-based Incentive Payments

A case study/ Examples

Contact us

What is WeBSEDFF?What is WeBSEDFF?

A direct financing facility operated by the EBRD

For (small) renewable energy and (industrial) energy efficiency projects

In the Western Balkans (Albania, Bosnia and Herzegovina, Croatia, FYR Macedonia, Montenegro and Serbia, including Kosovo, under UNSCR 1244)

Endowed with up to EUR 50 million of loan funds + up to EUR 13 million in (TC) and incentive payment funds

Expected number of projects: 15-25

Financing instruments under WeBSEDFFFinancing instruments under WeBSEDFF

Senior (secured) loans and project financing arrangements

From EUR 2 million to EUR 6 million EBRD financing (for certain countries from EUR 1 million)

Average (expected) maturity of 6-8 years for energy efficiency and 10-12 years for renewable energy projects, with appropriate grace periods and flexible repayment schedules

Market based interest rates

Supported by TC funds for project identification and preparation as well as by incentive payments based on the estimated CO2 emission reductions generated by each eligible project

Structure of the Structure of the WeBSEDFFWeBSEDFF

EBRD

BorrowerVerification Consultant

Project Consultant

€ €Loan Agreement

Technical Assistance Implementation Verification

DonorFunded Contract

DonorFunded Contract

* Incentive payments will be paid upon technical completion of the investments to eligible Borrowers

Incentive Payment*

Positioning of the WeBSEDFFPositioning of the WeBSEDFF

WeBSEDFF is part of a broader Sustainable Energy Initiative of the EBRD for the Western Balkans, including also:

– The WeBSECLF – a credit line facility of up to EUR 60 million for financing industrial energy efficiency and small renewable energy projects through Participating Banks (in BiH, FYR Macedonia, Montenegro and Serbia) with individual loans between EUR 100 thousand and EUR 2 million, TC assistance and incentive payments

– An institutional capacity building component of up to EUR 2 million to address deficiencies in the regulatory framework and other obstacles to the development of the market for sustainable energy projects

Institutional capacity building EBRD has up to €3.5mio to address deficiencies in the regulatory frameworkDevelopment of RES support mechanisms (FITs)Preparation of primary and secondary legislationSupport to grid operators in RES integrationNational RE Action PlanInstitutional capacity building

Institutional capacity building EBRD has up to €3.5mio to address deficiencies in the regulatory frameworkDevelopment of RES support mechanisms (FITs)Preparation of primary and secondary legislationSupport to grid operators in RES integrationNational RE Action PlanInstitutional capacity building

Up to €3mio in TC fundsProject & Verification consultant provides guidance to the project sponsors and estimate and verify compliance. Develops common branding. Additional legal consultants.

Up to €3mio in TC fundsProject & Verification consultant provides guidance to the project sponsors and estimate and verify compliance. Develops common branding. Additional legal consultants.

€50mio + up to €9mio for Incentive Payments

Payments based on CO2 emission reductions - lays the foundations for a future CO2 market - cap set at 15-20% of the loan to avoid excessive incentive payment, - min efficiency and min savings required.

€50mio + up to €9mio for Incentive Payments

Payments based on CO2 emission reductions - lays the foundations for a future CO2 market - cap set at 15-20% of the loan to avoid excessive incentive payment, - min efficiency and min savings required.

Western Balkans Sustainable Energy Direct Financing Facility – a successful EBRD Model

Results to date

- Five renwable energy projects and one energy efficiency project for €21.5 mio in projects are approved which will save 63 MtCO2

Capacity building achievements include:- Serbia: support to the Ministry of Energy and Mining in transposition of the EU Directive on Renewables to local Energy Law - Montenegro: Development of full set of secondary legislation to the Energy Law (ongoing)

- Albania: support to the Ministry of Economy in FiT design (methodology, FiT level, affordability, caps)

Eligibility criteria (1)Eligibility criteria (1)

Eligible types of projects:*

– Renewable Energy (predominantly greenfield projects up to 10 MW) –run-of-river hydro power plants, wind farms, solar systems, biomass systems generating heat and electricity, etc.

– Industrial Energy Efficiency – on site co- or tri-generation; rehabilitation of boilers, compressed air systems and steam distribution systems; installation of chillers; installations for heat recovery from processes; various other EE improvement measures or combinations of them;

* Full list is available upon request* Full list is available upon request

Eligibility Criteria (2)Eligibility Criteria (2)

In order to qualify for financing and incentive payments under WeBSEDFF the projects should meet certain eligibility criteria: *

– Technical criteria - defined in terms of:

At least 20 percent of energy savings for industrial energy efficiency projects;

A minimum efficiency (utilization) rate for renewable energy projects;

– Financial criteria – sound financial / economic structure and sufficient equity capital contributed to the project by the Sponsor;

– Other criteria – for projects requiring concessions, licenses and permits, those should be obtained in compliance with the relevant EBRD requirements (transparent and competitive process, among others)

* Detailed information on the eligibility criteria can be provided upon request* Detailed information on the eligibility criteria can be provided upon request

Operational Arrangements (1)Operational Arrangements (1)

Project consultants will screen and evaluate potential projects. Their role is to:

– Support project sponsors to define the scope of their projects (including by performing an Energy Audit) and assist them in applying for financing

– Verify the compliance of the project with the technical and other eligibility criteria

– Estimate the potential CO2 emission reductions by each project on the basis of which the incentive payments can be calculated

– Provide guidance to the project sponsors about the best practices in the field and support them in project implementation.

Operational Arrangements (2)Operational Arrangements (2)

Approval Process and Other Features:

– A two-stage approval procedure carried out in London

– Expected duration from initial discussions to final approval: 4 – 9 months

– Legal costs: to be covered by the EBRD (subject to certain constraints)

– Interest rates: market based, depending on the type and risk profile of the project, the Sponsor and other considerations

Financing Process (1)Financing Process (1)

Preliminary Discussions

Screening Due Diligence and Structuring

Initial meetings and site visits

Discussions on mutual interest for cooperation

Entrepreneurs provide information about their company and the project

EBRD Bankers prepare a Screening Memorandum for approval by the Investment Committee

EBRD and outside consultants conduct technical, environmental, legal and financial due diligence of the company and the project

Bankers and Sponsor define and agree on the transaction structure and valuation

Final Decision of the Investment Committee

Mandate Letter Term Sheet

Pre-investment phase (from 4 to 9 months )

Financing Process (2)Financing Process (2)

Legal Agreements are drafted and executed

Subscription and disbursement take place

Company provides EBRD and the Project Consultant with regular updates on financial performance and project progress

Monitoring and RepaymentInvestment

Implementation and Monitoring

Verification of the technical completion of the project by the Verification Consultant

Provision of incentive payments (to eligible borrowers)

Post-investment phase (up to 12 years )

Company provides EBRD with regular updates on financial performance

Company repays the loan

AgendaAgenda

EBRD at a glance

Introduction to the WeBSEDFF

Eligibility and Operational Arrangements

CO2-based Incentive Payments

A case study/ Examples

Contact us

Incentive Payments: basic ideaIncentive Payments: basic idea

In order to encourage local entrepreneurs to develop Sustainable Energy projects in a less than perfect market environment, WeBSEDFF will offer incentive payments to eligible projects

The mechanism for provision of incentive payments under WeBSEDFF is based on the CO2 emissions that each project will avoid

It emulates a CDM carbon credits transaction, but without generating actual carbon credits for the project sponsor or a third party

Incentive Payments: Operational ArrangementsIncentive Payments: Operational Arrangements

The incentive payments will be paid upon technical completion of each eligible project:

– Verification Consultant will be hired using TC funds to establish the technical completion and operational viability of each project;

– The incentive payments will be paid towards a reduction of the outstanding loan principal –the entrepreneurs will not receive a lump sum, but will benefit through reduced interest and principal payments over the life of the loan;

– Incentive payment cap levels of 15-20% of the loan principal will be introduced to prevent excessive subsidies for highly efficient projects or for projects with low leverage;

Mechanism Design: formulaMechanism Design: formula

The general formula for calculation of the amount of the incentive payments for both RE and EE projects is as follows:

IP = CO2 emissions avoided per year x Price per ton of CO2 x Annuity factor

Where:

CO2 emissions avoided per year – a project specific variable

Price per ton of CO2 – a shadow price stipulated by the EBRD

Annuity factor – a variable depending on a discount rate and the number of years over which CO2 emissions reductions will be remunerated

Mechanism Design: formula (2)Mechanism Design: formula (2)

For RE projects the quantity of CO2 emissions avoided per year can be calculated as follows:

CO2 emissions avoided per year = MW of installed capacity x Hs x C

Where:

MW of installed capacity – a project specific variable

Hs – a utilization rate parameter (annual effective hours of operation per year) that will be specified according to project type;

C – a coefficient that converts MWh of electricity generated into CO2 emissions avoided (depending on the region specific electricity generation mix). Typical values can be in the range 0.5-1.1

AgendaAgenda

EBRD at a glance

Introduction to the WeBSEDFF

Eligibility and Operational Arrangements

CO2-based Incentive Payments

A case study/ Examples

Contact us

A Energy Efficiency Project in FYROMA Energy Efficiency Project in FYROM

Company active in the meat production, processing and packing sector

– Proposed measures: steam boiler upgrading, installation of return condensate pipe system, replacement of insulation panels, replacement of old compressors, implementation of energy management system, installation of frequency controllers, lighting replacement, and others

– Expected annual savings:

Electricity: 993 MWh €109,000

Heavy Fuel Oil: 212 t €189,000

– Total investment: €1.5m

A Energy Efficiency Project in CroatiaA Energy Efficiency Project in Croatia

Large Bakery with a daily production capacity of 75,000 loafs and 135,000 pieces of pastry

– Proposed measures: new boiler house for heating and new boiler house for main production facility, new compressor shockers for frozen products, new cool storage room, new backer machines

– Expected annual savings (due to increase of production capacity after measures, savings were calculated as specific savings – kWh/kg of product):

Fresh products: 38%

Long lasting products: 29%

Frozen products: 57%

– Total investment: €13.14m (including purchase of land for new site)

A Biomass Project in CroatiaA Biomass Project in Croatia

Installation of a biomass fired cogeneration power plant

– Investment: Cogeneration power plant, fuelled with forest wood chips to produce heat and power. Heat is used in pellet production facility, power is fed into the grid.

– Technical features: ORC technology, power generation: 1 MW, heat generation, 4.1 MW, design according to demand of pellet production

– Total investment: €6.6m

– Expected IRR: ~ 20% (high feed-in tariffs)

A Small Hydro Power Project in KosovoA Small Hydro Power Project in Kosovo

Rehabilitation and upgrading of small HPP near Prizren

– Proposed measures:

Rehabilitation: rehabilitation of electrical and hydro-mechanical equipment, basic repair of civil works

Upgrading: Installation of new and additional turbine generator unit, extension of power house, new penstock, new forebay, diversion channel, desander and intake

– Investment:

Rehabilitation: €360,000

Upgrading: €2.17m

– Expected IRR: ~ 13%

Benefits of energy efficiency for a Benefits of energy efficiency for a companycompany Decreased costs Increased revenues Decreased risk Improved product quality Improved company image

Increased competitiveness Improved environment Higher company value!

Energy Efficiency & Renewable Energy Energy Efficiency & Renewable Energy InvestmentsInvestments

Industrial Energy Efficiency Investments Renewable Energy Investments

On site cogeneration of heat and electricity

Rehabilitation of steam distribution systems Wind farms

Rehabilitation of boilers Installation of heat recovery from processes

Run-of-river hydro plants

Replacement of old gas boilers with condensing

boilers

Installation of absorption chillers/new

chillers

Solar water systems generating hot water for

processes and/or heating

Switch from electricity heating to fuel based

direct heating

Energy Management Systems or Building

Management Systems

Biomass systems generating heat only or

heat and electricityProcess improvements

including enhanced controls

Installation of Variable Speed Drives on selected

electric motorsGas engines using biogas

Rehabilitation of compressed air systems

Rehabilitation of power distribution systems

Diesel engines using biodiesel

Co-production of heat and electricity Co-production of heat and electricity

Many enterprises have boilers set up for producing steam / hot water. The electricity is taken from a power grid.

Replacing these boilers by high pressure boilers will make possible production of the electric power in steam turbines, while steam of low pressure at an output of the turbine can be used for technological needs.

The majority of old Soviet boilers were

designed for cheap fuel and thus they require: – Modern monitoring systems– Economizers– Better isolation – Other improvements

Changing old gas boilers for Changing old gas boilers for condensation boilerscondensation boilers

Exhaust gases of common gas boilers contain a plenty of steam which consists of hydrogen from fuel and oxygen from atmosphere

Energy of that steam can be used for needs of low-temperature consumers (central heating)

For the purposes of heating the electric power is an inefficient choice

At transition to fuel heating the economy of power resources reaches up to 75 %

And even higher percentage can be reached if renewable energy sources are used.

Upgrading the systems of steam Upgrading the systems of steam distribution and deliverydistribution and delivery

Old systems mainly have centralized steam production and long routes of transfer,

Often in that case worked-out steam and hot condensate is not used.

the Decentralized systems and steam collectors and use of a condensate can improve the situation

Improving technical process, Improving technical process, including control systems including control systems

The majority of old facilities still use manual management of valve gates, etc.

Modern IT technologies can improve management and the control considerably.

Utilizing the tech process heatUtilizing the tech process heat

Use of energy at its different levels of temperature

Use of heat for heating, drying and other aims

the Scandinavian pulp and paper industry can be an example for complex utilizing of tech process heat

Installation absorption coolers and Installation absorption coolers and modern cooling systemsmodern cooling systems

• Old systems are centralized and tend to incur large amount of energy losses

• The distributing system uses less energy and losses lesser amount of power.

Using variable speed electric enginesUsing variable speed electric engines

Work of the engine can be adjusted for corresponding load.

Economy on exceeding capacity of engines

Energy saving in buildings/facilities Energy saving in buildings/facilities

Warming of roofs, walls, floors, doors Installation of modern windows Installation of effective systems of heating Installation of effective systems of ventilation and air-

conditioning Modernization of systems of illumination

Since insulation is not a in the focus of the Facility (maximum a complementary measure, we should better leave it

Contact usContact us

Donald MishaxhiPrincipal Banker

EBRD Resident Office in AlbaniaTel: +355 4 22 32 898E-mail: mishaxhd@ebrd.com

Daniela Diedrich-Ristic

Energy Efficiency & Climate ChangeTel: +44 20 7338 7768Email: diedricd@ebrd.com

Nenad PavlovicProject Manager

Tel: +381 11 20 40 357 E-mail: nenad.pavlovic@seec-bg.com

Johannes HönigProject Director

Tel: +49 711 8995 377E-mail: johannes.hoenig@fichtner.de