Unlocking Sustainable Energy Investments in CEE: Challenges & Opportunities

1. EBRD's Experience on Financing Residential EE in CEE: instruments, challenges, opportunitiesAlexander Hadzhiivanov EBRD, Energy Efficiency and Climate Change Team Brussels, 19 June 2009 Promoting EE in buildings through EU Cohesion Policy

2. Agenda • Opportunities for SE investments • Barriers for financing residential EE • EBRD case studies (financing models in Bulgaria and Slovakia) • Distinction of EBRD financing vehicles

3. Opportunities for sustainable energy investments in the residential sector of CEE EBRD focused on sustainable energy investments: SEI: general framework for Bank’s SE investments; SEI 1 (2006-2008): € 2.7 billions; SEI 2 (2009-2011) objectives: € 3 to 5 billions of investments; mobilisation of € 100 millions on TC; carbon reductions of 25 to 35 MtCO2/year; Large social impact of residential EE; Removal of subsidies on energy tariffs Long life-time of technically simple measures Labour intensive, locally implemented projects   Positive micro and macro economic impact;

4. Opportunities for sustainable energy investments in the residential sector of CEE: figures • Largest energy consumer of 39% from the FEU • Largest carbon reduction potential: 29% from the overall BAU emissions; • Negative carbon reduction costs; • Cost efficient reduction of 35 to 40% from the heat energy use; • At least € 90 billions within the new MS needed; • Only € 2.26 billions enlisted within SF for 2007-2013 for building EE • (120 years needed under 50% of co financing)

5. Barriers to sustainable energy financing for the banking sector in CEE Uncertainties about market demand for energy efficiency financing Fragmentation of the residential sector Legal enforcement in the property and multi-storey apartment buildings (constrains of national housing codes) Lack of technical expertise for appraisal and risk assessment; Information asymmetries and misconceptions about the technical risks and financial benefits of energy efficiency No specific marketing tools or budget allocated for such activities Tenors longer than those of commercial business lending

6. SLOVSEFF: Slovakia Sustainable Energy Finance Facility:complex building refurbishment €15 million €15 million €15 million • € 60 million credit lines • 8 year loans • 2 years grace period €15 million

7. Slovakia Sustainable Energy Finance Facility - www.slovseff.eu • EBRD Credit Line EUR 60Mil out of which ~ EUR 30Mil for residential EE • Financially intermediated by 4 local Slovak banks • Eligible Sub-Borrowers • Housing Associations • Housing Cooperatives or • Building Management Companies • Grant Support Bohunice Int’l Decommissioning and Support Fund • Technical Assistance • Simple Energy Audit + Energy Performance Certificate • Performance-Based Incentives to Sub-Borrowers and Banks • 20% of the related loan amount, upon successful implementation and verification

8. Structure of SLOVSEFF

9. Insulation of walls, roof, floors Compact heat exchanger stations Efficient biomass and gas boilers Solar water heaters Double/triple glazing Heat pumps SlovSEFF: Examples of eligible Sub-projects (Housing Associations) Projects involving the acquisition and installation of equipment, appliances and materials including but not limited to the following:

10. REECL: Residential Energy Efficiency Credit Line: dwelling level EE Total framework: € 50 million (committed € 42+5), disbursed up 03/09: € 36 million; Six PBs: ProCredit, BulBank, UBB, Reifeisen, PostBank, DSK (3 PBs - fully disbursed); TC: € 1.8 million; Incentives from KIDSF: € 12.8 million; Leverage of incentives to total project costs: 7.4 Number of projects: 24,250; CO2 reductions: 260,000 tonnes per year

11. Structure of the facility EBRD KIDSF Funded Contract Donor Funded Contract for TA of collective refurbishment € Credit Line Training And Marketing Support Technical Consultant (complex refurbishment projects only) Participating Banks Project Consultant Technical services leading to group loan application Confirms Sub-Project compliance; Verifies implementation € Loan Agreement Sub-Borrower * Incentive payments paid upon completion of investments to Participating Banks and Sub-borrowers

12. Bulgarian Residential Energy Efficiency Credit Line - www.reecl.org • EBRD Credit Line of EUR 50 Mil • Financially intermediated by 6 local Bulgarian banks • Individual (retail) lending to households for measures at the level of the house / apartment within defined eligibility list. (e.g Bulgaria) • Eligible Sub-Borrowers = Individual Households or Collective Applications • Grant Support Kozloduy Intl Decommissioning and Support Fund • Technical Assistance • List of eligible equipment with defined technical specifications and minimum energy efficiency characteristics • List of eligible suppliers • Performance-Based Incentives to Sub-Borrowers and Banks • 20% for individual borrowers • 30% if min. 50% of the households in a block of flats apply collectively;

13. Backbones of an ‘enabling’ environment for thermal rehabilitation (TR) of A-blocks • Housing Associations • willing (consensus reached) • and • able(affording) to borrow • Local Banks • willing to lend (able to assess risks) • and • comfortable with the collateral • The Government • Enabling Legislation (housing code and civil code) • Social Safety Net for the low income households • Financial and Fiscal Instruments

14. Key aspects that facilitate TR of A-blocks In countries where TR works the following are true… • HA registered as a legal body • legal requirement for HA to maintain the building • HA legal capacity to borrow to carry out investments • decision to invest in thermal rehabilitation is simple to take and enforceable to all its members • legal requirement to contribute and accumulate funds in the Building Maintenance Fund • buildings have metering and control devices and energy is paid according to actual consumption; • utility companies can provide a history of payment proving ‘transactional behavior’ of the HA

15. Distinction of EBRD’s financing vehicles: SEFFs working through commercial banks via credit lines Different approaches depending on market development: • Individual (retail) lending to households for measures at the level of the house / apartment within defined eligibility list. (e.g Bulgaria) • Bundled approach - as above but with incentives and technical support to promote collectivised approaches to multi-apartment buildings (e.g. Bulgaria) • Direct lending to creditworthy housing associations or condominiums, together with technical assistance that supports institutional strengthening and implementation of EPBD (e.g. Slovakia)

16. Distinction of EBRD’s financing vehicles: design and administration Country specific and target group tailor made design High leverage of incentives to total investments (7.4 in Bulgaria and 5.1 In Slovakia), compared with 1.18 to 1.8 of other support programmes; Wide coverage of the sector (4 to 6.3 times more projects) Excellent and equal territorial distribution through the networks of local banks Fast disbursement rates Absorption capacity limited by market constrains only up to full potential of EE opportunities

17. Distinction of EBRD’s financing vehicles: implementation Fair and equal rules for all the customers (regardless to income level, location, subjective judgement on eligibility) Simple, transparent and straightforward procedures (selection and decision making based on technical and economical eligibility only) – no subjective decisions of authorities High marketing leverage (mobilising resources of local banks combined with dedicated professional expertise of consultants) Experience on monitoring and reporting (years of experience on reconciliation of technical/banking and result oriented reporting)

18. Thank you! Alexander Hadzhiivanov Energy Efficiency & Climate Change Team European Bank for Reconstruction and Development One Exchange Square, London EC2A 2JN tel: +44 207 338 7605 fax: +44 207 338 7642