I recommend ESCO model to municipalities and public sector

March 29, 2018

Photo: BGEN
I recommend ESCO model to municipalities and public sector

I believe that the use of public-private partnership, or the ESCO mechanism, is the right way to increase energy efficiency in the public sector. Therefore, I recommend it to municipalities, but also the entire public sector,” said Aleksandar Antić, Minister of Mining and Energy. In an interview for the Improving Energy Efficiency through Public-Private Partnership Model publication he noted that apart from securing funding, the private partner guarantees the energy savings from which the fee will be paid, thus taking over the bulk of the risks for the implementation of projects.

How much is energy efficiency important for Serbia?

The energy security of the country is enhanced, the competitiveness of the economy increases and regional development is promoted. The negative impact of the energy sector on the environment and the energy budget expenditures is decreasing, but the standard of citizens is also improving. Under the Energy Sector Development Strategy of the Republic of Serbia until 2025 with projections until 2030, energy efficiency is promoted as a new energy source.

What are Serbia’s obligations concerning the improvement of energy efficiency, especially in public buildings?

The obligations arise from the signing of the Energy Community Treaty, but also from pre-accession negotiations with the European Union. Accordingly, in 2010, by adopting the first action plan, Serbia accepted the obligation to achieve 9% final energy savings over a period of nine years, until 2018. The third action plan, adopted at the end of 2016, stipulates that by the end of 2018 public and commercial sector save 158,100 metric tons of oil equivalent. According to the data from this plan, in the period from 2010-2015, about 50% energy savings were achieved, while in the public and commercial sector 60% of the target set for this sector was reached.

In order to achieve the set goals, the Law on Efficient Use of Energy, adopted in 2013, envisages the implementation of the energy management system for large consumers and the public sector. Among other things, the public sector entities required to implement this system are obligated, starting from 2017, to save 1% of primary energy consumption per year, which is in line with EU policy requiring the public sector to spearhead improvements in energy efficiency.

Under a new obligation in the Energy Community Treaty regarding the implementation of EU Directive 2012/27/-EU on energy efficiency, it will be necessary to rehabilitate 1% of the floor area of central government facilities from 2018, in order to meet certain minimum requirements. In cooperation with the relevant institutions and with the technical assistance of the GIZ, the Ministry has initiated activities to prepare an inventory of these buildings which will be used to prepare the renovation program.

The public sector entities are obligated, starting from 2017, to save 1% of primary energy consumption per year

What is the state of energy efficiency in the public sector? What is the potential? Where can the greatest savings be achieved?

The largest capacity is certainly in the building sector, which also accounts for the highest share of energy consumption (about 40%), and in the household sector, regardless of whether it concerns the rehabilitation or reconstruction of buildings, the use of more efficient appliances, or making the heating system more efficient. In Serbia, like in the EU and neighboring countries, the implementation of projects in this sector is one of the biggest challenges.

In what ways is the government encouraging the public sector and local governments?

Under the Law on Efficient Use of Energy, there are several regulatory mechanisms. Besides the obligation to apply the energy management system, I would mention the Rulebook on the minimum criteria on energy efficiency in public procurements. The law also envisaged mechanisms such as the Budget Fund for improving energy efficiency and the possibility of applying the ESCO model for financing the improvement of energy efficiency and the use of energy services. So far, in the period 2014-2016, the fund has financed the implementation of three public notices for public facilities and local government units. These refer to schools, kindergartens, health care centers, and municipal buildings. A total of 39 contracts worth RSD 230 million and a USD 500,000 donation from the UNDP were signed. The estimated energy savings are 40%. Unfortunately, the funds are very meager in relation to actual needs, and the Ministry is making great efforts to increase them.

Given that resources in state and municipal coffers are limited, and that major funds are needed for the energy efficiency of many facilities, can private-public partnership (PPP) be one of the solutions?

The Ministry sees public-private partnerships as one of the important mechanisms for financing projects for improving energy efficiency in the public sector, as declared in all action plans. These projects, unlike some others, are paid depending on implemented measures, over a shorter or longer period, which enables the use of a special type of PPP. Under the ESCO model of contracting energy services, the private partner, in addition to providing financing for the project, guarantees, based of its expertise, savings to be achieved and from which the fee is paid during contractual period, taking over most of the risks. These are energy services with a guaranteed effect.

Through the Regional Energy Efficiency Program (REEP) technical assistance is provided to municipalities for the projects based on the ESCO model

In order to facilitate the implementation of the ESCO concept, based on the Law on Efficient Use of Energy, the Ministry adopted the Rulebook on Determining the Model of Energy Services Contract for the implementation of measures to improve energy efficiency, when a contracting side is from the public sector, under which the contract models defined for public buildings and lighting are forms of PPP. This contract model is binding for the public sector.

At the same time, through the Regional Energy Efficiency Program (REEP), financed by the European Bank for Reconstruction and Development (EBRD), the Ministry provided technical assistance to municipalities for the preparation and implementation of the first projects based on the ESCO model. It is expected to be one of the important instruments for meeting requirements under the new Energy Efficiency Directive to increase energy efficiency in central government buildings. With this in mind, I recommend the application of the ESCO model, as well as using the EBRD’s technical assistance for project preparation, to municipalities, but also to the entire public sector.

Do municipalities and cities use PPP as a model for increasing energy efficiency? If they do not, what are the obstacles?

More than a quarter of the total number of PPP projects that have received a positive opinion from the Commission for PPP are aimed at increasing energy efficiency at the local level, primarily through the modernization of public lighting under the ESCO model. We believe that publishing a standardized mandatory contract model in the Rulebook has contributed to the development of this kind of projects and we expect an even broader use. Since ESCO and PPPs are still something new for most cities and municipalities, further work is needed on the promotion and education of the public sector.

Serbian Government has allowed the Ministry of Health to conduct the rehabilitation of the heating system under the PPP model

What has been done so far concerning the legislative framework? How much and what does the state do to promote the importance of energy efficiency and raise awareness about it?

Two laws are crucial – on the efficient use of energy and on planning and construction. While the former covered the application of a wide range of regulatory measures and incentives in all sectors of energy consumption, the latter, with its decrees, laid down the conditions regarding energy performances for new and renovated buildings.
The drafting of implementing regulations of the former is in the final stage, while improvement is needed concerning implementing regulations of the latter. Due to limited budget resources, the Ministry does not implement classic awareness-raising measures for the general public but is very active with meetings and projects. In addition, the implementation of the Law on Efficient Use of Energy, and primarily the introduction of energy management systems and energy managers, is expected to intensely promote the issue of energy efficiency and economical energy consumption.

Are there projects for schools, health care institutions, courthouses at the state level?

In cooperation with the EBRD, the Ministry has begun work on identifying projects that would improve energy efficiency through the ESCO model, and we expect that the first pilot projects will be launched soon, and their preparation and implementation will be supported with technical assistance. In addition, the Serbian Government has allowed the Ministry of Health to conduct the rehabilitation of the heating system under its jurisdiction under the PPP model.