June 2011

1. Western Balkans Sustainable Energy Direct Financing FacilityTaylor-made financing for small Renewable Energy and industrial Energy Efficiency projects June 2011

2. Content • Introduction to the WeBSEDFF • Eligibility and Operational Arrangements • CO2-based Incentive Payments • A case study/ Examples • Contact us

3. 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

4. Financing 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

5. Structure of the WeBSEDFF EBRD Donor Funded Contract Donor Funded Contract € € Incentive Payment* Loan Agreement Borrower Verification Consultant Project Consultant Technical Assistance Implementation Verification * Incentive payments will be paid upon technical completion of the investments to eligible Borrowers

6. Positioning 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

7. Western Balkans Sustainable Energy Direct Financing Facility – a successful EBRD Model Up to €3mio in TC funds Project & Verification consultant provides guidance to the project sponsors and estimate and verify compliance. Develops common branding. Additional legal consultants. Institutional capacity building EBRD has up to €3.5mio to address deficiencies in the regulatory framework Development of RES support mechanisms (FITs) Preparation of primary and secondary legislation Support to grid operators in RES integration National RE Action Plan Institutional capacity building €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.

8. 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)

9. 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

10. 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

11. 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.

12. 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

13. Financing Process (1) Pre-investment phase (from 4 to 9 months ) Term Sheet Mandate Letter Due Diligence and Structuring Preliminary Discussions Screening • Final Decision of 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 • Entrepreneurs provide information about their company and the project • EBRD Bankers prepare a Screening Memorandum for approval by the Investment Committee • Initial meetings and site visits • Discussions on mutual interest for cooperation

14. Investment Financing Process (2) Post-investment phase (up to 12 years ) Monitoring and Repayment Implementation and Monitoring • Verification of the technical completion of the project by the Verification Consultant • Provision of incentive payments (to eligible borrowers) • Company provides EBRD and the Project Consultant with regular updates on financial performance and project progress • Legal Agreements are drafted and executed • Subscription and disbursement take place • Company provides EBRD with regular updates on financial performance • Company repays the loan

15. Agenda • EBRD at a glance • Introduction to the WeBSEDFF • Eligibility and Operational Arrangements • CO2-based Incentive Payments • A case study/ Examples • Contact us

16. Incentive 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

17. Incentive 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;

18. Mechanism 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 CO2x 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

19. 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

20. Agenda • EBRD at a glance • Introduction to the WeBSEDFF • Eligibility and Operational Arrangements • CO2-based Incentive Payments • A case study/ Examples • Contact us

21. A 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

22. A 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)

23. A 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)

24. A 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%

25. Benefits of energy efficiency for a company • Increased competitiveness • Improved environment • Higher company value! Decreased costs Increased revenues Decreased risk Improved product quality Improved company image

26. Energy Efficiency & Renewable Energy Investments

27. 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

28. Changing old gas boilers for condensation 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.

29. Upgrading the systems of steam distribution 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

30. Improving technical process, 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.

31. Utilizing 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

32. Installation absorption coolers and modern 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.

33. Using variable speed electric engines Work of the engine can be adjusted for corresponding load. Economy on exceeding capacity of engines

34. Energy saving in buildings/facilities Since insulation is not a in the focus of the Facility (maximum a complementary measure, we should better leave it 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

35. Contact us