Energy Efficiency in District Heating and Joint Implementation

1. Energy Efficiency in District Heating and Joint Implementation Mark van Wees CAP SD Energy and Climate Consultants Moscow, 21-23 August 2006

2. District Heating Market Share Source: IEA

3. Energy Efficiency in District Heating Source: IEA

4. Performance indicators

5. 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

6. Share of cogeneration Source: IEA

7. 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)

8. 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

9. Joint Implementation Baseline emissions Ton CO2e/yr ERUs Project emissions 2012 2008 time

10. 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

11. Energy efficiency with the context of district heating reform Source: IEA

12. Carbon Market 2004-2005 Source: PointCarbon “Carbon 2006”

13. Austria Netherlands EBRD ECF Belgium Standard Bank Worldbank KfW TGF Sweden Finland Denmark IFC JCF-JBIC NEDO

14. Categories of Buyers • Government: buy for Kyoto compliance / risk averse / inflexible in transaction / passive approach to project identification / tenders • Private sector: buy for compliance EU ETS / some flexibility in transaction / medium risk / direct project-by-project approach in purchasing • Banks/funds/traders: buy for trading / can serve different buyers / balancing risk versus profit / flexible transactions and price structures / active approach to project identification

15. 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

16. 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

17. 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

18. 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.)?

19. 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

20. 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!

21. 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) !