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EBRD helps policy reform to stimulate energy efficiency

February 25, 2016 | Comments: 0Author:

EBRD helps policy reform to stimulate energy efficiency

The European Bank for Reconstruction and Development sees large opportunities for savings in public budgets in the improvement of efficiency of municipal lighting, says Daniel Berg, the international financing institution’s director in Serbia. He told Balkan Green Energy News the bank is providing technical cooperation to a number of municipalities and hopes to finance investment in energy efficiency lighting projects, including a major overhaul in the city of Belgrade.

Berg took the position in August, coming from Bulgaria, where he headed the bank’s operations. Prior to that, he had equivalent positions in Albania and Kyrgizstan. Berg joined EBRD in 1995, coming from the United States Department of Treasury. The bank’s office in Serbia, which he manages, is responsible for annual investments averaging EUR 480 million per year. Daniel Berg is educated in the U.S., at Rutgers College and Johns Hopkins School of Advanced International Studies.

“We hope to finance the first wind farms in Serbia, possibly by the end of this year,” he announced and added the bank will continue to provide policy advice to the government. In his words, as electricity tariffs begin to reflect market costs more closely, EBRD expects a rise in investment in energy efficiency measures in all sectors of the economy.

What are the experiences of the European Bank for Reconstruction and Development in financing renewable energy and energy efficiency in the Balkans and what are the current and planned projects in Serbia?

The EBRD is strongly committed to sustainable energy and has made it a priority for investments across the EBRD region. Although 2015 did not see huge investments in renewable energy, we continue to work on key policy initiatives which will support better energy efficiency in the country.

In particular, we have been working with the Government of Serbia to prepare supporting decrees for investment and financing of renewable energy – with the government and investors to ensure the legal framework is appropriate – and we do anticipate major investments in wind energy in the near future. We have also been working with a number of municipalities to review their lighting systems with the hope that they will carry out long-term contracting with ESCO companies to improve efficiency in lighting. We also have financed a small biogas project. And, we consistently work with our corporate partners to seek opportunities to reduce their carbon and energy footprint.

A large ESCO street lighting project is in the pipeline, supported by EBRD: seven municipalities in the territory of Belgrade will have as much as 65,000 streetlights switched to modern technology.

The EBRD provided a EUR 200 million restructuring credit line to the Electric Power Industry of Serbia (EPS). Ultimately, our work with EPS – in production and distribution of energy – should help increase efficiency of the company and the country. Our loan to help EPS install new smart meters will allow its customers to better manage and therefore reduce their energy usage. We also are financing the modernisation and construction of small hydropower plants together with EPS.

Looking back, we have made a real impact with energy efficiency financing efforts. In 2009 we launched the Western Balkans Sustainable Energy Financing Facility which targets the development of financing markets for small and medium-scale renewable and energy efficiency projects via the local banking system. This programme combines approximately EUR 150 million of funding for 12 partner banks in Bosnia and Herzegovina, Croatia, FYR Macedonia and Serbia and EUR 24 million of European Union assistance funding for incentive payments for sustainable energy investments. The projects are estimated to lead to CO2 emission reductions of 250,000 tonnes annually.

Across the region, we know that it is important to involve the private sector in energy efficiency solutions. This is why we’re boosting participation of private energy service companies in the municipal sector through our policy dialogue and hopefully also in future with financing. EBRD‘s consultancy team in Serbia is supporting municipalities and public entities in their preparation of such projects.

There have been signals from circles close to the Government of Serbia that the state isn’t financially capable to support the production of energy from renewable sources. In the meantime, the activities for another electoral cycle have commenced. Since EBRD was involved in the process related to the secondary legislation, what are your expectations about the issue of power purchase agreements (PPA)?

Providing a predictable and fair regime, which should be outlined in the law and regulations regarding PPAs, is a cornerstone for renewable energy investments and can help attract foreign investors.

The bankable secondary legislation is important so that investors can finance their projects efficiently.  The process has been moving more slowly than all sides would like, but we’ve been working with the Government of Serbia closely and expect progress this year.

The Electric Power Industry of Serbia and transmission system operator Elektromreža Srbije will have an important role in ensuring the success of the initiative to boost renewable energy sources.

We believe the regime the government is implementing for the first 500 MW of wind energy is a sensible way to achieve the country’s objectives and targets.  We do not believe this amount of energy production would have a major impact on residential tariffs for electricity, which remain low compared to average European tariffs.

The Sustainable Energy Initiative has become one of the pillars of EBRD’s operations. What are the achievements in Serbia?

The Fund for ‘Delivering Resource Efficiency Investments’, or the DRIVE Fund, aims to help capture the huge potential for improved resource efficiency in the Western Balkans, Croatia and Turkey. Austria provided EUR 5 million to assist the EBRD to:

  • develop a clear understanding of the opportunities in terms of existing technologies and new solutions;
  • identify high-transition impact investment opportunities to improve water and materials efficiency;
  • identify requirements for technical assistance in innovation, investment planning and implementation;
  • identify requirements for policy dialogue to improve regulatory frameworks;
  • deliver targeted technical assistance to enable expansion of resource efficiency solutions in processes, products and services.

Several projects have already been supported by the DRIVE Fund. Two examples are:

  • an assignment to understand and quantify the potential effects of climate change on the power generation and transmission assets in Turkey as well as provide an initial assessment of the most technically robust and economically viable solutions for mitigating the effects; and
  • a feasibility study of water efficiency opportunities in district heating in Banja Luka.

The DRIVE Fund builds upon the success of the Sustainable Energy Initiative. Since 2006, when SEI was launched, EBRD financed 31 sustainable energy and resource efficiency projects in Serbia with EUR 638 million. These projects are estimated to have led to annual CO2 emission reductions of some 1.4 million tonnes. This is equivalent to half of Montenegro’s energy use–related CO2 emissions in 2013.

What are the immediate objectives and conditions in the reform programme with the loan to the Electric Power Industry of Serbia?

EBRD’s loan is aimed at helping EPS restructure its balance sheet and support its recovery after the devastating floods in 2014. It also helps the company reach long-term development objectives –commercialisation, improving corporate governance, retiring least economically viable and most pollution-generating plants, improving collection and, in general, working towards market-level tariffs and increasing efficiency.  The loan was developed in coordination with the International Monetary Fund and World Bank – jointly the three international financial institutions are supporting the government’s efforts to restructure and improve operations in state-owned utilities.

The Electric Power Industry of Serbia and transmission system operator Elektromreža Srbije will have an important role in ensuring the success of the initiative to boost renewable energy sources.

Our financing will support further reforms in Serbia’s energy sector and aims to contribute to energy market liberalisation, an important condition for EU accession. It will also deepen regional integration in the Western Balkans by stimulating cross-border energy distribution and trade.

As noted above, we are very much engaged to support an increase in alternative sources of energy, including renewables, and EPS and transmission system operator Elektromreža Srbije (EMS) will have an important role in ensuring the success of this initiative.

How did EBRD contribute to the adoption of the energy efficiency legislation and regulations in Serbia and the surrounding countries?

The EBRD has been active in assisting to address barriers to energy efficiency in the Western Balkans since beginning operations in the region. In 2009, with EU support, we established the Regional Energy Efficiency Programme (REEP) in the Western Balkans.

The programme has been supported by grant funds of EUR 23.35 million approved under the Western Balkans Investment Framework (WBIF), which pools grant resources in order to leverage loans for the financing of priority infrastructure and socio-economic development in the Western Balkans.

This programme is providing policy support to the governments in the Western Balkans to eliminate market barriers to energy efficiency, and accelerate the take-up of energy services.

However, more needs to be done. The energy intensity of the six Western Balkans countries (Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro, Serbia) is around four times higher than the average for the European Union. This is due to aged or poorly managed energy infrastructure, especially in industry and buildings. The need for improving residential energy efficiency is a particular priority in the region. Following the successful implementation of REEP in the past three years, it has been decided to extend REEP to include lending to residential sector energy efficiency investments.

It is critical that the Western Balkans countries capture the enormous energy efficiency potential. When properly supported by a solid legal and institutional framework and backed up by well designed and implemented investment programmes, increased energy efficiency delivers many cost-effective benefits for competitiveness, the environment, security of energy supply and economic development in general.

Serbia has new energy efficiency standards for public procurement of lighting and equipment, but investments still need to be prepared, contracted and financed. What are the effective mechanisms for funding?

We are working with the government to streamline the process of funding for this type of projects through attracting the private sector in delivering municipal services. Private sector participation helps introduce the innovative approaches to the delivery of municipal services, such as energy performance contracting (EnPC), improvements to the tendering process and increased participation of private energy service companies (ESCOs).

Under ESCO approach, energy efficiency projects are being implemented by experienced private sector companies, significantly raising the quality of these ventures and enabling investment in modernisation. EnPCs are the basis of this involvement. They help to minimise operational expenditures, such as heating, lighting, ventilation and the supply of drinking water funded from the company’s resources and repaid from the realised savings. The ESCO contracted under the EnPC in turn guarantees a specific level of service performance, which ensures that all investments and its service delivery are covered by the savings achieved.

With the support of the EBRD, the Ministry of Mining and Energy welcomed the increased participation of ESCOs in the public sector to increase energy efficiency investments and, in order to facilitate this, it adopted an ESCO by-law which in effect includes contract templates for energy efficiency investments in street lighting and for public buildings.

In fact, together with the EU, we are supporting one the largest ESCO private sector street lighting projects, to be launched in seven municipalities in the vicinity of Belgrade: in Barajevo, Grocka, Lazarevac, Mladenovac, Obrenovac, Sopot and Surčin. It will include upgrades for up to 65,000 streetlights with new, more efficient lighting technologies. The key aspect to the project is that a private contractor will finance these energy efficiency investments in street lighting. The legal basis for this is the mentioned ESCO by-law.