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World Bank Approach to Financing Heating Infrastructure – Europe and Central Asia (ECA) Region

World Bank Approach to Financing Heating Infrastructure – Europe and Central Asia (ECA) Region. Presentation at Conference on Heating Sector Institutional Reform in the FSU Baku, October 21, 2005. Typical Approaches to Heating Sector Improvements.

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World Bank Approach to Financing Heating Infrastructure – Europe and Central Asia (ECA) Region

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  1. World Bank Approach to Financing Heating Infrastructure – Europe and Central Asia (ECA) Region Presentation at Conference on Heating Sector Institutional Reform in the FSU Baku, October 21, 2005

  2. Typical Approaches to Heating Sector Improvements • Institutional reform, pricing, subsidy restructuring • Supply-side upgrades, system conversions • Demand-side improvements through financial intermediation and/or energy service company (ESCO) models

  3. World Bank Study – Coping with the Cold • Survey data from Armenia, Croatia, Kyrgyz Republic, Latvia, Lithuania, Moldova and Tajikistan • Study focused on both district heating and individual solutions based on electricity, fossil fuels and fuelwood • Included willingness-to-pay surveys in several countries

  4. Coping with the Cold, Challenges • Inability to regulate individual demand in DH systems. Over- and under-heating is frequent • Heating infrastructure is deteriorating due to under-investment and mismanagement • Low collection rates - unable to disconnect non-payers • Many networks fully or partly abandoned • Consumers substitute with dirty energy

  5. Coping with the Cold, Poor vs. Non-Poor • Non-poor people spend $30-50 per year on heat • Poor people spend $25-40 per year on heat • The non-poor has better quality of heating with fewer adverse health consequences • poor people’s heat demand is quite unelastic – this means that if DH prices go up and they can not control demand, they cannot and will not pay for service

  6. Coping with the Cold – Conclusions (1) • Heating systems should only be modernized in high-density areas where DH is cost competitive • Block heating and building-level solutions based on natural gas may be feasible if home owners can organize themselves • Targeted subsidies may be needed to avoid welfare losses for the poorest DH costumers if tariffs become cost-reflective

  7. Coping with the Cold – Conclusions (2) • Policies and investment framework must allow poor people to opt in or out • Targeted vouchers for equipment and possibly fuel may be promising instruments • In bigger networks lifeline tariffs can be effective • Targeted subsidies may be needed to avoid welfare losses for the poorest DH costumers if tariffs become cost-reflective • Network investments must be coupled with metering and control options

  8. Ongoing WB EE Projects in CEE • Lithuania (GEF) • Poland (IBRD and GEF) • Croatia (IBRD and GEF) • Romania (GEF) • Bulgaria (GEF) • ESMAP project in Poland

  9. Lithuania Heat Demand Management Project • Project launch: 2003 • $6.5 million: VE $2.5m and VCM $4.0m • VE Component (Dalkia): Heat regulation improvements. 75% support from Effective Energy Consumption Fund. Total planned investment: $34m. • VCM Component: Building envelope improvement through revolving fund with international fund manager

  10. Poland EE Projects (1) • Krakow EE Project (launched 2002) • Recipient: MPEC, Krakow • $15 million IBRD loan, of which $7.5 million for ESCO activities • Operation of utility based ESCO (POE) as subsidiary of MPEC • Targets public sector buildings in Malapolskie Region

  11. Poland EE Projects (2) • Poland EE Project (launched spring 2005) • Recipient: BGK bank and POE, Krakow • $11 million GEF Grant: $7 million for guarantee facility, $2 million for POE ESCO investments, $2 million for TA • Work through participating banks, guarantee coverage: 50-70% • Active pipeline development and support to energy audits.

  12. Romania Energy Efficiency Fund • Launched 2003 • GEF Grant of $10 million: $8m for EE investments and $2m for TA • International Fund Manager • Debt financing only (co-financing) • Targets direct financing as well as TPF through ESCOs

  13. Bulgaria Energy Efficiency Fund • Launched Summer 2005 • GEF grant of $10 million: $4.5m partial credit guarantee, $4.0m debt financing, $1.5m TA • Co-financed by $1.8 million from GoB and $5.75 million from bilateral donors (tbc). • Fund will be flexible employing debt finance or guarantees as needed • International Fund Manager

  14. Russia Municipal Heating Project • $85m IBRD loan onlent to 5-9 city governments • General system rehabilitation • Investment support, TA and institutional support • Trend towards introducing building-level substations • Private or quasi-private operators have replaced municipal companies in a few cases • Project is ongoing and completion is expected by end of 2007

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