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Energy Efficiency in Kosovo

Energy Efficiency in Kosovo. Jas Singh Senior Energy Efficiency Specialist Energy Unit, Europe and Central Asia. Kosovo Donors Conference “ Sustainable Energy Development in Kosovo ” Pristina, May 14, 2013. Background. Importance of EE to Kosovo. Energy security

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Energy Efficiency in Kosovo

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  1. Energy Efficiency in Kosovo Jas Singh Senior Energy Efficiency Specialist Energy Unit, Europe and Central Asia Kosovo Donors Conference “Sustainable Energy Development in Kosovo” Pristina, May 14, 2013

  2. Background

  3. Importance of EE to Kosovo • Energy security • Reduces energy imports (Kosovo imported 572 GWh in 2012) • EE is cheapest, cleanest domestic energy resource (€1 invested in demand-side EE avoids over €2 in supply-side investments) • Enhances economic growth • Reduces large public expenditures in energy and energy subsidies, creating fiscal space for other development priorities • Increases industrial competitiveness (EE reduces input costs) • EE pays off – recent German study found €1 in EE resulted in €4-5 in benefits (increased tax revenues, lower costs, reduced unemployment/ subsidies) and creates 15-19 jobs per €1 million investment • Reduces environmental and social impacts of energy sector • Positive health impacts from reduced air pollution • Often least-cost way to reduce local and global air pollution • Helps mitigate social impacts of tariff reforms

  4. Potential for EE in Kosovo • Energy Use by Sector Source: MED, Energy Balance 2012

  5. Potential for EE in Kosovo • 9% indicative target set for NEEAP 2010-2018 • 2.2% total savings between 2010-2012 • 3% target set for 2013-2015 Source: *1st NEEAP and 2nd NEEAP (first draft); ** Report on the implementation of the 1st NEEAP, 2010-2012, Kosovo

  6. Potential for EE in Kosovo • 38 EE measures included in 1st NEEAP period • Concentrated in the residential and services sectors (public sector only) • Includes select measures in the industrial, transport, agricultural sectors which account for 53% of energy use • EE potential for building sector in Kosovo is large • World Bank Institute (WBI) study found 47% of final energy consumption attributed to building sector and has an energy saving potential of 30-40%, 250 GWh/year • €1.37 billion in investment needed for building sector (over 80% of investment needs are in the residential sector) • Simple payback period for municipal and central government buildings is 4-5.3 years

  7. Key Findings of WBI Study – Building Sector

  8. Key Findings of WBI Study – Public Buildings

  9. World Bank Global Experience in Energy Efficiency

  10. Barriers to Energy Efficiency Investments Policy / Regulatory Equipment/ Service Providers End User Financiers • Energy pricing and collections • Procurement policies favor lower cost • Import duties on EE equipment • Unclear or underdeveloped EE institutional framework • Lack of appliance standards and building EE codes, lack of testing, poor enforcement • Limited and poor data • High project development costs • Limited demand for EE goods/services • Diffuse/diverse markets • New contractual mechanisms (ESCOs) • Limited technical, business, risk mgmt. skills • Limited financing/ equity • Lack of awareness, high discount rates • High upfront and project development costs • Lack of abilityto pay incremental cost • Low EE benefits relative to other costs • Perceived risks of new technologies/ systems • Concept of EE is “virtual” – cannot see • Mixed incentives • Behavioral biases • Lack of credible data • High cost of financing • New technologies and contractual mechanisms • Small sizes/widely dispersedhigh transaction costs • High perceived risks –not traditional asset-based financing • Competing investment opportunities with higher return, lower risk projects • Over-collateralization • Behavioral biases

  11. Typical EE Financing and Delivery Models

  12. Choosing the Right Instrument Market Maturity Commercial Financing + can address financing and implementation issues and build ESCO capacity – Needs a mature market with operating ESCOs Advanced commercial financing (ESCOs) In public sector, for example, there are many options… Commercial financing (loans/bonds) + can address financing issues – needs municipalities with strong borrowing capacity + may scale up commercial financing – needs mature banking sector and eligible borrowers; poor track record in several countries Partial credit or risk guarantees + Leveraging of private funds – needs municipalities/ ESCOs that have borrowing capacity Dedicated credit lines + Can be structured to address financing needs and evolving capacity of municipalities – challenging cost coverage from revenues EE funds/Public ESCOs + Easy to implement, can directly finance municipalities – Institutional sustainability is questionable Budget financing with budget capture + Easy to implement, can directly finance municipalities – Sustainability is questionable Budget financing/Grants Public Financing

  13. Lessons Learned and Remaining Challenges Challenges • Cost reflective pricingand universal meteringreforms remain slow • EE investment needs are massive requiring increased focus on leverage • Emerging EE agencies are politically weakand under-resourced • Credit lines for industrial and commercial sectors need toact as market catalysts • Need for more robust, scalable and sustainable models for EEin public and municipal buildings • Region has underdeveloped energy service/ESCO markets, weak legal and regulatory frameworks, mixed track record • EE cuts across all sectors, requiring better cooperation with urban, water, transport, agriculture, health, education sectors Lessons • EE is resource-intensiveand requires a long-term focus • Sector reformshave been crucial to create enabling environment and proper incentives for EE • EE governanceis critical to ensure strong policy/legal frameworks are in place and implementation is effective (e.g., time-based targets with clear accountability) • Development of efficient delivery mechanisms(e.g., credit lines, ESCOs, utility programs, labeling schemes) are more important than technology • Financing is available, but not always accessible and affordable • Access to credible data and information, incentives, linking to other co-benefits (i.e., improved comfort) are also needed

  14. WorldBankExperiencewithEEinWesternBalkans • Recently implemented and planned projects total ~US$127 million for EE in public buildings • Energy savings typically 30-45% per building, payback periods ~6-8 years • Substantial co-benefits (improved comfort, urban renewal, public awareness, student education) • Willingness to co-finance • Lessons learned: • Limited replication of donor pilots and grants without sustainable funding mechanisms in place • Government project units orphaned after projects, loss of technical, implementation capacity • High energy cost savings means that projects can and should repay upfront investments • Difficult to scale-up; 20-30 buildings/year average

  15. WorldBankExperiencewithEEinWesternBalkans • Recommendations going forward • Need to develop centralized, sustainable institutional structures to provide public financing and allow donor funds to revolve, capacity to be retained and sustained • Need variety of instruments to serve both the creditworthy and poorer municipalities • Need to boost leverage—e.g., pooling of donor funds, requirements for co-financing, bring in some commercial financing • More aggressively foster ESCOs and commercial financing structures • Need to better bundle buildings to scale-up impacts • Need to shift from project-based planning to programs with an emphasis on achieving macro goals (e.g., NEEAP targets) • Need to better link policy and regulatory measures with project-level investments, need enforcement pressures to encourage investments

  16. Identifying the Gaps

  17. Key Policies and Actions Taken by Kosovo

  18. What are Donors Doing?

  19. Framework for Successful Energy Efficiency Programs Policy and Regulations Institutions • Overarching EE legal framework • (EE Law) • Cost-reflective energy pricing • Codes/standard w/ enforcement mechanisms • EE incentive schemes w/ funding sources • EE targets by sector • Public budgeting/procurement • encourages EE • Dedicated entity with EE mandate • Clear institutional roles/accountability • Inter-ministerial coordinating body • Assignment of roles for monitoring and compliance enforcement • Authority to formulate, implement, evaluate and report on programs • Tracking on progress for EE targets Successful Energy Efficiency Programs Finance Information • Database on energy consumption • Industrial and building stock • Information center/case study database • Database of service providers, EE technologies, equipment providers • Broad, sustained public awareness • Appliance labeling • Commercial bank lending (credit lines, guarantees) • Cashflow-based EE financing • Commercial ESCO financing • Public sector EE financing • Residential home/appliance credit • Equipment leasing Technical Capacity • Energy auditor/manager training and certification programs • Private sector training programs (banks, ESCOs/EE service providers, end users) • EE project templates (audits, M&V plans, EPC bidding documents, contracts) • Energy management systems • developed

  20. What are the Remaining Gaps? • Database of end users, consumption information • Sector and sub-sector EE potential and market studies (e.g., transport, industry) • Information center (e.g., case studies, EE projects, EE service providers, technologies/equipment suppliers) • Broad, sustained awareness campaigns • Develop/Implement certification scheme for energy auditors, energy managers • Development of project guides, ESCO bidding/contract models, M&V protocols, audit/baseline templates • Sustained training to private sector (end users, ESCOs, banks) • Platforms to share implementation experiences, project information • Increased capacity building with municipalities for EE planning, implementation, reporting Policy and Regulation • Develop additional secondary legislation, rulebooks and enforcement mechanisms • Enhanced EE incentive schemes for private sector end users, with dedicated funding sources • Enabling environment for EE in public sector (procurement, budgeting) • Ongoing institutional capacity enhancements for KEEA • Develop program functions within KEEA (e.g., program formulation, implementation, evaluation, monitoring/tracking) • Enhance government capacities for enforcement • Creation of suitable public financing scheme for municipalities (e.g., EE revolving fund) • Industrial/SME and residential EE credit schemes • Cashflow and ESCO financing bank product development Information Institutions Technical Capacity Financing

  21. Addressing the Gaps • Government of Kosovo: • Develop and adopt needed secondary legislation, new EE Directive • Improve district heating supply, DH metering and billing, judicious DH system expansion • Seek measures to continually move towards cost reflective pricing • Create suitable public sector financing mechanism (e.g., EE revolving fund) • Develop programs, incentives for all sectors for EE, particularly for households • Assess EE savings potential for additional sectors (e.g., transport, industry) • Launch broad, sustained raising of public awareness on EE • Strengthen KEEA • Donors: • Support development additional legislation, rulebooks based on international best practices • Help to design and implement appropriate financing and incentive schemes • Assist to identify investment needs for total EE potential and by sector • Support capacity building with KEEA and municipalities • Develop database on end users, consumption • Help create databaseof service providers, EE technologies, equipment providers • Provide private sector training programs (banks, potential ESCOs/EE service providers, end users) • Share EE project templates (audits, M&V plans, EPC bidding documents, contracts)

  22. Thank you

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