Energy crisis and climate change; a challenge for policy makers and economy in Southeast Europe

1. Energy crisis and climate change; a challenge for policy makers and economy in Southeast Europe International conference; Southeast Europe Association (SOG) Tutzing, March 27 and 28,2009 A view from the World Bank Franz Kaps, Senior Partnership Advisor (consultant) Europe and Central Asia Region

2. Countries with Ongoing WB EE Projects in SEE • Bulgaria (GEF) • Croatia (IBRD and GEF) • Macedonia (GEF) • Montenegro (IBRD) – under preparation • Romania (GEF) • Serbia (IBRD)

3. Serbia EE Project • IBRD loan $21 million implemented in Phase 1 and additional $28 million allocated for Phase 2 • Rehabilitation of Clinical Centre in Belgrade as well as schools, universities, hospitals and orphanages across Serbia • Savings in the order of 40-50% expected • Average pay-back time around 4 years

4. Macedonia Sustainable Energy Project • Bank for Development Promotion • Major Project period 2007-2011 • GEF grant of $5.5m • Co-financed by $2.8m from GoM and the Macedonian Bank for Development • Major emphasis on policy and institutional framework • Particular emphasis on public sector buildings (e.g. schools and hospitals) • Both debt finance and guarantees foreseen

5. Lessons Learned • Subsidies often dominate and condition the market for EE • Local FIs will need extensive training and hand-holding before they will be willing/able to lend for EE and develop a project pipeline • EE funds can help kick-start EE market and get local FIs involved • Public procurement regulations can be serious impediments for ESCO operations • ESCO projects often need substantial “co-financing” because clients want high-cost measures • Some market segments, e.g. hospitals, may need guarantees before EE investments are feasible • Implementation capacity is often main barrier

6. Western Balkans Energy Efficiency Study • Support implementation of National Energy Efficiency Assessment Papers (NEEAPs) • Calculation of energy efficiency indicators and benchmarking • Identifying gaps in existing data • Analysis of institutional framework and barriers • Focus on public sector: • Public sector should be first mover - leading by example • Create a market for suppliers and consultants that will benefit private sector EE • Country-specific reports during Summer 2009

7. Preliminary Findings • Public sector: Important potential for EE improvements • Residential sector: complex and with limited data • Industrial sector: Statistical data show potential but in reality there are large barriers • Major gaps in the enabling framework for EE • Institutional capacity to formulate and implement EE policy low • Close coordination among IFIs/donors (e.g. EC, EBRD, EIB, KfW, USAID, UNECE) essential

8. Next steps • Estimation of sector-specific potential and barriers • Evaluation of the applicability and transferability of promising public-private models • Identification of institutional, financing (including carbon finance) and financial intermediation models • Proposing improvements to the institutional and regulatory framework

9. The Tools in the Toolbox • IBRD loans to governments and directly to companies (including FIs) • Grants from WB-administered trust funds (e.g. GEF) • Partial credit and risk guarantees • Sub-national loans – WB/IFC cooperation • IFC instruments • Carbon Finance / Green Investment Schemes • Technical Assistance

10. Climate Change and Energy Vulnerability

11. Context • The energy sector is sensitive to changes in seasonal weather patterns and extremes, e.g. • Affects energy supply • Impacts transmission and distribution capacity, integrity • Disrupts oil and gas production • Significant investment is projected in coming decades to renew, replace or expand existing energy infrastructure • Design codes are based on historic climate data

12. Challenge How to ensure the resilience of existing and planned infrastructure to current and projected climate change, and inherent modeling uncertainties?

13. Proposal • Pilot an assessment of energy sector vulnerability to current and projected climate change (2030-50) and review options to adapt to identified risks • Stakeholder engagement key • Focus on understanding vulnerabilities • Identification of flexible risk based adaptation strategies • In parallel it will be important to ensure sector access to timely, tailored and and well targeted weather/ climate data

14. Proposed Work Plan • Pilots vulnerability assessment in two countries • Albania, first half 2009 • South Caucasus (TBD), second half 2009 • Develop operational toolkit based on pilot experience • Disseminate toolkit across at least 5 other countries in South Eastern Europe and South Caucasus (2010)