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Innovative Mechanisms for Financing Municipal Energy Efficiency Programs and Projects

Innovative Mechanisms for Financing Municipal Energy Efficiency Programs and Projects. Center for Energy Efficiency. The experience of Bulgaria, compared to EU and US practices. Eupatoria, 9 June 2004 Dr Zdravko Genchev EnEffect, Bulgaria.

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Innovative Mechanisms for Financing Municipal Energy Efficiency Programs and Projects

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  1. Innovative Mechanisms for Financing Municipal Energy Efficiency Programs and Projects Center for Energy Efficiency The experience of Bulgaria, compared to EU and US practices Eupatoria, 9 June 2004 Dr Zdravko Genchev EnEffect, Bulgaria

  2. The need of municipal energy planning in transition countries Functions of municipalities change and their influence on energy sector The need of energy efficiency improvement The need of investments in energy supply and demand sector The need of integrated planning of energy resources The lack of capacity and data for IRP

  3. New functions of municipalities in local energy management Municipality as a consumer of energy Municipality as an energy producer and energy provider (distributer) Municipality as a regulator and an investor in the municipal energy sector Municipality as a motivator to improve energy efficiency

  4. Prerequisites for an effective municipal energy planning Political will of local authorities to introduce energy management on the local level Local capacity to develop and implement a municipal energy program, based on IRP Municipal energy database Instruments to manage, finance, monitor and evaluate a municipal energy program

  5. Decision for MEIS Municipal energy information system (MEIS) Building of local capacity І political decision Developmentof the municipal energy program Implementation of the municipal energy program ІІІ political decision Municipal energy planning process Preparation Selection of planning approach and determination of the goals Development Feed back ІІ political decision Implementation

  6. Factors that lead to a decision to invest in energy efficiency Significant burden of energy expenses on municipal budgets Availability of cheap and easy to access credit resources Availability of cheap energy saving technologies and equipment Guarantees that achieved savings will be secured in the municipal budget

  7. What do specific financing mechanisms offer? Flexible schemes for financing of energy efficiency projects Financing investments under conditions different from the regular banking practices Unification of multiple financing sources thus distributing and reducing the risk

  8. Financing mechanisms, applicable in Bulgaria during the transition Financing by bonds Leasing financing Energy Service companies (ESCOs) Vendor (commodity) credits Public-private partnership (PPP)

  9. Financing by bonds (1) Relatively long period of bond emission preparation Emission prospect should be developedand approved by the State Commission on Securities Investment agent should be selected Successful completion of subscription In case of failure bonds should be bought back by the municipality together with the respective interest

  10. Financing by bonds (2) General Obligation Bonds The emission is recorded in the municipal budget and the whole risk is taken by the municipality Revenue Bonds Bonds are related to the project results and depend on their profitability

  11. Leasing financing (1) Avoid budget restriction of investment expenses Leasing installments are equal and defined at fixed interest rate Leasing period may last 3-5 years Leasing raises the purchase expences due to the risk of final pay back denial

  12. Leasing financing (2) Financial leasing Known as capital leasing, conditional purchase contract or installment purchase contract Operational leasing At the end of the leasing period the lesseemay obtain the equipment ownership for its real market price

  13. Leasing financing (3) Municipal leasing Financial leasing under benign conditions – applied mainly in the US

  14. Energy Service Companies (1) The ESCO which implements the project ensures the investment and takes the whole investment risk The owner of the project site (the municipality) repays the capital investments on the account of the achieved savings

  15. Energy Service Companies (2) The owner of the project site (the municipality)is not committed to the implementation of the project After the completion of the contract the equipment ownership is transferred, free of charge, tothe owner of the project site (the municipality)

  16. Energy Service Companies (3) Energy Performance Contract - 1 The owner of the project site (the municipality) finances the energy efficiency measures by a loan from a third party (in most cases commercial banks)or signs a leasing contract for the project equipment The ESCO guarantees the savings in result of the project implementationand takes all related risks

  17. Energy Service Companies (4) Energy Performance Contract - 2 In case of savings lower than contracted, the ESCO refunds the difference to the owner of the project site (the municipality)

  18. Energy Service Companies (5)Pay off Savings Contract Pay off is a subcathegory of energy performance contract The payment schedule depends on the savings level The higher the savings – the quicker the pay off

  19. Energy Service Companies (6) Shared Savings Contract The ESCO finances the project by its own means or by a third party loan The ESCO is responsible for the loan borrowing and repay and takes all related risks The ESCO guarantees that the project owner (the municipality) will never pay more than the amount of the energy bills agreed in the contract

  20. Energy Service Companies (7) Chauffage contract(heating contract) Long-term (20-30 years)energy service contract, under which heat supply is the subject of the purchase The ESCO ensures the necessary modernization and maintenance of the heating systems on its own account The project owner (municipality) pays the consumed energy in accordance with the contracted price

  21. Public-private partnership (1)Joint Ventures with Private Enterprises The municipality disengages itself from the role of investor The private sector ensures bank financing and takes all corresponding risks The private companies provide the necessary capacity and qualified experts

  22. Public-private partnership (2)Joint Ventures with Private Enterprises The municipality participates with long term assets, which usually do not have significant market value out of the project The municipality preserves its key role in the management of the joint venture

  23. Other financing mechanisms Equity financing Financing of power distribution companies Financing of WB Prototype Carbon Fund Financing through JI (Joint Implementation) projects (Kyoto Protocol)

  24. Room for cooperation in local energy planning and financing Results of the energy efficiency demonstration zone project in Gabrovo Experience of the Bulgarian Municipal Energy Efficiency Network EcoEnergy The role of the Regional Network for Efficient Use of Energy and Water Resources (RENEUER) in SE Europe Cooperation within UNECE EE21 project

  25. Contacts: Thanks for your attention Center for Energy Efficiency Sofia, Bulgaria eneffect@mail.orbitel.bg www.eneffect.bg

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