Capacity Building: Industrial Energy Audit Analysis for Bankable Projects (Component I: Workshops on SE Project Financing) CWP.05.AM (AHEF.90.AM) INOGATE Technical Secretariat and Integrated Programme in Support of the Baku Initiative and the Eastern Partnership Energy Goals Contract № 2011/278827 A project within the INOGATE Programme Implemented by: Ramboll Denmark A/S (lead partner) EIR Global sprl. The British Standards Institution LDK Consultants S.A. MVV decon GmbH ICF International Statistics Denmark Energy Institute Hrvoje Požar April 2016
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Capacity Building: Industrial Energy Audit
Analysis for Bankable Projects
(Component I: Workshops on SE Project Financing)
CWP.05.AM (AHEF.90.AM)
INOGATE Technical Secretariat and Integrated Programme in Support of
the Baku Initiative and the Eastern Partnership Energy Goals
Contract № 2011/278827
A project within the INOGATE Programme
Implemented by:
Ramboll Denmark A/S (lead partner)
EIR Global sprl.
The British Standards Institution
LDK Consultants S.A.
MVV decon GmbH
ICF International
Statistics Denmark
Energy Institute Hrvoje Požar
April 2016
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This report has been prepared with the support of the European Union The content of this report is the
sole responsibility of the experts and can in no way be taken as reflecting the views of the European Union
Name of the
Document
Capacity Building: Industrial Energy Audit Analysis for Bankable Projects
(Component I: Workshops on SE Project Financing), CWP.05.AM
(AHEF.90.AM)
Status of the
document
Final
Name Date
Prepared by V. Babajanyan, A. Korakan,
K.Taslakyan , A. Antonenko,
28/05/2015, 16/05/2016
Reviewed by W. Lutz, K. McCann, A. Twomey 03/10/2015, 07/10/2015, 28/10/15
INOGATE Interstate Oil and Gas Transport to Europe
IRR Internal Rate of Return
ITS INOGATE Technical Secretariat
LCCA Life Cycle Cost Analysis
LFI Local Financial Institution
NPV Net Present Value
PC Partner Countries (INOGATE Partner Countries)
PSRC Public Services Regulatory Commission
R2E2 Renewable Resources and Energy Efficiency Fund
RES Renewable Energy Sources
SE Sustainable Energy
SIR Savings to Investment Ratio
SPP Simple payback period
TNA Training Need Assessment
ToR Terms of Reference
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1. PART 1 – EUROPEAN COMMISSION
1.1.Background
Assignment Title: Capacity Building: Industrial Energy Audit Analysis for Bankable Projects (Component I: Workshops on SE Project Financing), CWP.05.AM (AHEF.90.AM)
Country and Dates: Yerevan, Armenia, February -May 2015
Beneficiary Organisation: Association of Energy Service Companies for supporting the development of the energy sector in Armenia” Alliance of legal entities (Association of ESCO)
Beneficiary Organisation - key contact persons – name and e-mail address
Mr. Mikhail Martirosyan, President of the ESCO Association, [email protected]
Deliverables Produced Developed draft legislation act, presentations and this final report
Expert Team Members J. Bani, W.Lutz, V. Babajanyan, A. Korakan, K.Taslakyan , A. Antonenko
1.2.Essence of the Activity
The Technical Assistance (TA) assignment on Industrial Energy Audit Analysis for Bankable Projects
was implemented during the period February – May 2015. The TA was requested by the Armenian
Association of ESCO and included two components: 1) Workshops on SE Project Financing and 2)
Proposals for Secondary Legislation.
While this report relates only to the first component of the TA, it is important to view both parts of
this assistance as a fully integrated and unified intervention. The technical assistance provided by the
ITS experts was carefully designed to meet the overall project objective through a two-pronged
approach that would both remove legislative and administrative barriers to ESCO development while
simultaneously increasing the capacity of ESCO personnel to implement projects.
This component of the TA aimed to improve access to finance for SE projects in Armenia by training
energy professionals on financial feasibility analysis methodologies and approaches during the first
training workshop and by facilitating the dialogue between energy professionals, policy makers, LFI
and IFIs during the second workshop. The first workshop took place in Yerevan, Armenia on February
24 to 28, 2015 and the second workshop on May 5 and 6, 2015.
As an additional activities to support the development of ESCO market in Armenia, ITS conducted a
regional combined event on lessons learned on Energy Performance Contracts (EPC), EU experience
and applicability in the Partner Countries that took place in Stockholm, Sweden, between 9 and 11
February 2016. The regional event showed the implementation of the EPC in practice and provided
participants with a set of effective tools on how to improve efficiency in buildings and promote viable
energy service markets in their countries.
The ITS fully achieved the overall and specific objectives of the TA assignment that were related to the
improvement of the capacity of participants to independently develop and assess EE and RES projects
and the reforms needed to support viable ESCO market in Armenia.
1. The implementation of the capacity building events in an interactive, hands-on workshop format
where participants effectively learned by doing enabled an efficient transfer of knowledge to the
participants.
2. The selection of participants based on Participant Selection Questionnaires allowed ITS to identify
participants with real SE projects that were further developed and presented to potential investors
during the second workshop.
3. Equally, the selection of topics using Training Needs Assessment Questionnaires allowed ITS to
develop a tailored capacity building event to meet expectation of participants and cover the topics to
support the implementation of the participants’ projects.
4. Presentation of the most advanced SE projects to bankers during the second workshop facilitated
the attraction of real investments in SE projects and enhanced general capacity of decision makers on
measures to mitigate the potential risks and unblock investments.
1.4.Ownership and Benefits of the Activity
The main benefits of the activity for the Beneficiaries are:
1. The Armenian experts and decision makers improved their understanding on financial
feasibility analysis methodologies and approaches in accordance with the EU best practices.
2. The policy dialogue arranged during the second workshop contributed to the removal of the
barriers and the improvement of legislation and institutional frameworks.
The Beneficiaries took ownership in the following way:
1. The Beneficiary and local stakeholders provided ITS with all requested information and
necessary support during the preparation and implementation stages.
2. 2 out of 3 SE projects developed and presented to potential investors within this assignment
were financed by local financial institutions (LFI). The total investments directly facilitated by
ITS within this assignment were 1.9 mln EUR.
1.5.Recommendations
To continue further negotiations for financing SE projects improved within this assignment, including
the projects presented to potential investors during the second workshop in May 2015:
Project #1: Residential heating system replacement, developed by Techno Eco LLC; total project
investment cost: 65,000 EUR. During the second workshop, two LFIs expressed their firm interest in
providing project financing, and requested the developer to start discussion for cooperation on the
project. As of April 2016, the project is being financed by the Converse Bank.
Project #2: Construction of a Small Hydro Power Plant (SHPP) which is being developed by Ecovill LLC;
project cost: 1,850,000 EUR. During the second workshop, two LFIs expressed their firm interest in
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providing project financing, and requested the developer to start discussion for cooperation on the
project. As of April 2016, the project is being financed by a private investor.
Project #3: Insulation material production developed by Ecoperlit LLC; total project investment cost:
1,100,000 EUR. During the second workshop, one LFI expressed firm interest in this project and asked
the developer to provide more detailed information. As of April 2016, the project is still being
discussed with potential investors.
1.6.Challenges Faced
The ITS experts had an efficient cooperation with the beneficiary, the Association of ESCO, and did
not face any challenges during the preparation and the implementation of the TA assignment.
Table 1. Impact Matrix
Impact Area Developments 2012 (%)* Feb 2016 (%)*
Policy Facilitation of ESCO market as one of the policy instruments to support the development of SE projects
10% 20%
Regulation Support of the development and approval of ESCO Regulation
10% 50%
Technology Support of the development and utilisation of modern EE and RES technologies
5% 15%
Environment ESCO Model can provide guaranteed energy savings that might not be achieved under the normal contract conditions
5% 35%
Economics Indicators of decreased energy dependency
4% 14%
Social Better indoor climate and living conditions for citizens.
5% 45%
* The impact is estimated based on the experts’ opinion under the current circumstances and can be changed over time
Note: It is particularly difficult to quantify the impact of capacity building activities. The figures
provided in the table should therefore be considered with great caution.
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2. PART 2 – BENEFICIARY
2.1 Executive Summary
This part of the Report presents the results of two workshops on SE Project Financing implemented in
Yerevan, Republic of Armenia, through the Ad Hoc Expert Facility (AHEF) under the EU funded
INOGATE Technical Secretariat (ITS) Project. The overall objective of the activity is to improve access
to finance for SE projects through capacity building and improved secondary legislation related to
ESCOs in Armenia and to support the ESCO Association and to develop proposals for legal acts in this
field1.
While the results of this activity are elaborated in two separate reports, each relating to the different
activities: enhancing of capacity of ESCO staff and decision makers and improvement of secondary
legislation, it is nevertheless important to view both components holistically as a fully integrated and
unified intervention. This is one project. The technical assistance provided by the ITS experts was
however, carefully designed to meet the overall project objective through a two-pronged approach,
that taken together would both remove legislative and administrative barriers to ESCO development
while simultaneously increasing the capacity of ESCO personnel to implement projects that would
flow more freely as a result of the removal of barriers. The removal of barriers without proper
capacity building and vice versa would have been unlikely to yield the desired results. What is needed
is a fully integrated concept which is well reflected in the specific objectives of the workshops, which
are to:
Increase the capacity of 30 energy professionals selected by the "Association of Energy
Service Companies of Armenia" ("ESCO Association") for developing and assessing EE and RES
projects;
Increase the number of bankable EE and RES projects through the capacity building of
engineers;
Present and discuss draft legal acts for secondary legislation and/or regulations to facilitate
the energy services market in Armenia;
Improve access to SE project financing.
The first workshop took place in Yerevan, Republic of Armenia on February 24 to 28, 2015 and the
second workshop on May 5 and 6, 2015. The beneficiary invited 30 participants for the first workshop
of whom 27 professionals were able to attend, composed of ESCO owner/directors, energy engineers,
energy managers, energy auditors, economists, and financial managers. At the end of the four-day
training seminar all participants received completion certificates.
1 This report covers the Workshops on SE Project Financing. The regulatory framework for Energy Services and Energy
Performance Contracting is covered by a separate report "Component II: Proposals for Secondary Legislation".
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20 ESCOs/participants were invited to participate in the second workshop; 18 of them participated on
Day 1 and Day 2 sessions, and also received completion certificates. In keeping with the hands-on,
inter-active ethos of the workshops, participants were tasked with preparing four SE
homework/projects with the assistance of ITS experts. The results of these projects were presented,
evaluated and discussed at the workshop. The second day of the workshop was attended by Deputy
Minister Mr Hayk Harutyunyan of the Ministry Energy and Natural Resources, as well senior policy-
makers, energy regulators, and international project representatives of LFIs.
Figure 1 - Seminar participants together with ITS experts and the INOGATE Country coordinator after receiving their certificates, from the first workshop held in February 2015.
Figure 2–Participants of Second Workshop, May 2015.
These events successfully met the objective of improving access to finance for SE projects in Armenia
by training the energy professionals on financial feasibility analysis methodologies and approaches
during the first training seminar/workshop and by facilitating the dialogue between energy
professionals, policy makers, LFI and IFIs during the second workshop.
The SE projects presented by the participants attracted the serious interest of the financing
institutions, which strongly indicates that actual investments are expected as a direct result of the
event. Sections 2.4, 2.5 and 2.6 of this Report provide extensive details on the real and tangible
impacts of these events.
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2.2 Preparation
2.2.1 Training need assessment
At the beginning of the assignment, a training need assessment (TNA) was carried out by ITS experts in
order to establish the baseline upon which the impact of the events would be measured.
The TNA included a Training Needs Assessment Questionnaire for candidates to identify the main
topics, preferable format and further details of the content of the first workshop. The questionnaire
included 17 questions about the workshop and teaching format, the topics and themes deemed to be
of highest priority and interest, workshop materials, presentations and exercises, and general
information about the background of the candidate, including her/his experience in SE-related
activities.
Participants were selected based on a Participant Selection Questionnaire to candidates, requesting
information about the candidate and her/his company, and including five individual and eleven
company-related scoring questions. ITS experts developed the Scoring Methodology to select the
workshop participants based on the information provided in the Participant Selection Questionnaire.
The results of the Training Needs Assessment and of the Candidate Selection are given in Appendix 6
and 7 of this Report respectively, and the Scoring Methodology is presented in Appendix 8.
2.2.2 Target audience
The Association of Energy Service Companies of Armenia and the Ministry of Energy and Natural
Resources of the Republic of Armenia work in close cooperation in the energy efficiency field. In this
respect, the Ministry recognises the need for the ESCO Association to improve the capacity of its
members in the preparation of potential SE investment projects in order to successfully obtain project
finance.
The target audience were members of the ESCO Association, as well as other stakeholders. Relevant
policy makers and representatives of IFIs and LFIs also participated at various stages of the events.
The ITS experts prepared a candidate evaluation/selection form which included five criteria for
individuals and eleven criteria for candidate companies. The invitation of the participants to the events
was based on their total scoring based on the criteria defined in the Participant Selection Questionnaire
(see Appendix 7).
2.2.3 Selection of Topics
The First Workshop
The seminars were designed and conducted in an interactive, hands-on workshop format where
participants effectively learned by doing. Following introductory lectures, the participants performed
actual case study exercises with the New ITS Project analysis spreadsheet tool. The use of this
spreadsheet tool in particular, was favourably commented on by many of the participants as a highly
effective means of transferring knowledge and know how (see evaluation section of this report).
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Specifically, the seminars included three different activities:
• General lectures;
• Working group exercises;
• Team presentations, discussion and analysis of exercise assignments.
Lectures included an elaboration of case studies which, gradually increased in complexity as the
participants became more acquainted with the methodology and techniques demonstrated in these
studies. The case study lectures started on the first day with lighting energy conservation measures
(ECM) and were focused less on a technological approach and more on the analysis methodology. On
the second day, the case study lecture involved a comparison of different scenarios for a siphon turbine
with different turbine combinations. The final lecture studied transport ECM, with a combined EE and
RES project.
As will be shown in later sections of this Report, the seminar successfully achieved all intended
activities, including:
Training participants to apply life cycle cost analysis to develop EE/RES projects;
Developing the correct and most appropriate training material, including lecture slides and
workshop exercises;
Preparing and using of a training needs assessment questionnaire for each trainee in order to
establish an accurate baseline upon which impact of the events would be measured;
Assignment of relevant and appropriate homework assignments to participants in order to
improve the fundability of existing ESCO projects through using the skills acquired during the
training and with the aim evaluating the results during a second workshop.
The Second Workshop
The participants of the first workshop were assigned to develop SE homework/projects with the support
of the ITS experts. Four projects were presented and discussed during the workshop, with a particular
focus on the following:
The evaluation of projects from participants together with invited local banks;
Discussion and bankability assessment of the presented projects;
Discussion and identification of potential barriers to existing project financing;
Recommendations for a regulatory framework to stimulate the market for ESCOs and energy
services in Armenia.
Presentations and training material can be downloaded from the INOGATE web-portal using the
following link: http://www.inogate.org/activities/500?lang=en
2.2.4 The selection of trainers
The trainers were selected based on their sound practical knowledge and experience of energy audits,
energy management, SE financing and SE legal framework. Furthermore, the trainers also possessed
wide-ranging practical experience in establishing and implementing regulatory and investment policy