EBRD's Experience on Financing Residential EE in CEE: instruments, challenges, opportunities Alexander Hadzhiivanov EBRD, Energy Efficiency and Climate.

EBRD's Experience on EBRD's Experience on Financing Residential EE in CEE: Financing Residential EE in CEE: instruments, challenges, opportunitiesinstruments, challenges, opportunities

Alexander Hadzhiivanov Alexander Hadzhiivanov EBRD, Energy Efficiency and Climate Change TeamEBRD, Energy Efficiency and Climate Change Team

Promoting EE in buildings Promoting EE in buildings through EU Cohesion Policythrough EU Cohesion Policy

Brussels, 19 June 2009

AgendaAgenda

• Opportunities for SE investments

• Barriers for financing residential EE

• EBRD case studies (financing models in

Bulgaria and Slovakia)

• Distinction of EBRD financing vehicles

Opportunities for sustainable energy investments in Opportunities for sustainable energy investments in the residential sector of CEEthe residential sector of CEE

EBRD focused on sustainable energy investments:

– SEI: general framework for Bank’s SE investments;

– SEI 1 (2006-2008): € 2.7 billions;

– SEI 2 (2009-2011) objectives: € 3 to 5 billions of investments; mobilisation of € 100 millions on TC; carbon reductions of 25 to 35 MtCO2/year;

Large social impact of residential EE; Removal of subsidies on energy tariffs Long life-time of technically simple measures Labour intensive, locally implemented projects   Positive micro and macro economic impact;

Opportunities for sustainable energy investments in Opportunities for sustainable energy investments in the residential sector of CEE: figuresthe residential sector of CEE: figures

• Largest energy consumer of 39%

from the FEU

• Largest carbon reduction potential:

29% from the overall BAU emissions;

• Negative carbon reduction costs;

• Cost efficient reduction of 35 to 40%

from the heat energy use;

• At least € 90 billions within the new

MS needed;

• Only € 2.26 billions enlisted within SF

for 2007-2013 for building EE

(120 years needed under 50% of co financing)

Barriers to sustainable energy financing Barriers to sustainable energy financing for the banking sector in CEEfor the banking sector in CEE

• Uncertainties about market demand for energy efficiency financing

• Fragmentation of the residential sector

• Legal enforcement in the property and multi-storey apartment buildings (constrains of national housing codes)

• Lack of technical expertise for appraisal and risk assessment;

• Information asymmetries and misconceptions about the technical risks and financial benefits of energy efficiency

• No specific marketing tools or budget allocated for such activities

• Tenors longer than those of commercial business lending

SLOVSEFF: Slovakia Sustainable Energy SLOVSEFF: Slovakia Sustainable Energy Finance Facility:Finance Facility: complex building refurbishmentcomplex building refurbishment

€ 60 million credit lines 8 year loans 2 years grace period

€15 million

€15 million

€15 million

€15 million

Slovakia Sustainable Energy Finance Facility - www.slovseff.eu

EBRD Credit Line EUR 60Mil out of which ~ EUR 30Mil for residential EE

– Financially intermediated by 4 local Slovak banks

– Eligible Sub-Borrowers Housing Associations Housing Cooperatives or Building Management Companies

Grant Support Bohunice Int’l Decommissioning and Support Fund

– Technical Assistance Simple Energy Audit + Energy Performance Certificate

– Performance-Based Incentives to Sub-Borrowers and Banks 20% of the related loan amount, upon successful implementation and

verification

Structure of SLOVSEFFStructure of SLOVSEFF

EBRD

Participating Bank

Sub-Borrower

Independent Energy ExpertConsultant

€Credit Line

€Loan AgreementTechnical AssistanceEnergy Audits

Implementation Verification

BIDSFFunded Contract

BISDFFunded Contract

TrainingAnd Marketing

Support

EBRD

Participating Bank

Sub-Borrower

Independent Energy ExpertConsultant

€Credit Line

€Loan AgreementTechnical AssistanceEnergy Audits

Implementation Verification

BIDSFFunded Contract

BISDFFunded Contract

TrainingAnd Marketing

Support

Insulation of walls, roof, floors

Compact heat exchanger stations

Efficient biomass and gas boilers

Solar water heaters

Double/triple glazing

Heat pumps

SlovSEFF: SlovSEFF: Examples of eligible Sub-projects Examples of eligible Sub-projects (Housing Associations)(Housing Associations)

Projects involving the acquisition and installation of equipment, appliances and materials including but not limited to the following:

REECL: Residential Energy Efficiency REECL: Residential Energy Efficiency Credit Line: Credit Line: dwelling level EEdwelling level EE

Disbursement rates of REECL

-

500,000.00

1,000,000.00

1,500,000.00

2,000,000.00

2,500,000.00

3,000,000.00

Months

Eu

ro

Postbank Bulbank DSK RZB ProCredit* UBB Total

Total framework: € 50 million (committed € 42+5), disbursed up 03/09: € 36 million; Six PBs: ProCredit, BulBank, UBB, Reifeisen, PostBank, DSK (3 PBs - fully disbursed); TC: € 1.8 million; Incentives from KIDSF: € 12.8 million; Leverage of incentives to total project costs: 7.4 Number of projects: 24,250; CO2 reductions: 260,000 tonnes per year

Structure of the facilityStructure of the facility

EBRD

Participating Banks

Sub-Borrower

Technical Consultant(complex refurbishment projects only)

Project Consultant

€Credit Line

€Loan AgreementConfirms Sub-Project compliance;Verifies implementation

Technical services leading to group loan application

Donor Funded Contract for TA ofcollective refurbishment

KIDSFFunded Contract

TrainingAnd Marketing

Support

* Incentive payments paid upon completion of investments to Participating Banks and Sub-borrowers

Bulgarian Residential Energy Efficiency Credit Line - www.reecl.org

EBRD Credit Line of EUR 50 Mil– Financially intermediated by 6 local Bulgarian banks

– Individual (retail) lending to households for measures at the level of the house / apartment within defined eligibility list. (e.g Bulgaria)

– Eligible Sub-Borrowers = Individual Households or Collective Applications

Grant Support Kozloduy Intl Decommissioning and Support Fund– Technical Assistance

List of eligible equipment with defined technical specifications and minimum energy efficiency characteristics

List of eligible suppliers

– Performance-Based Incentives to Sub-Borrowers and Banks 20% for individual borrowers 30% if min. 50% of the households in a block of flats apply collectively;

Backbones of an ‘enabling’ environment Backbones of an ‘enabling’ environment for thermal rehabilitation (TR) of A-blocksfor thermal rehabilitation (TR) of A-blocks

The Government

• Enabling Legislation Enabling Legislation (housing code and civil code)

• Social Safety Net Social Safety Net for the low income households

• Financial and Fiscal InstrumentsFinancial and Fiscal Instruments

Housing Associations

• willingwilling (consensus reached) and

• ableable (affording) to borrow

Local Banks

• willing to lend (able to assess assess risksrisks)

and • comfortable with the collateralcollateral

Key aspects that facilitate TR of A-blocksKey aspects that facilitate TR of A-blocks

In countries where TR works the following are true…

– HA registered as a legal body

– legal requirement for HA to maintain the building

– HA legal capacity to borrow to carry out investments

– decision to invest in thermal rehabilitation is simple to take and enforceable to all its members

– legal requirement to contribute and accumulate funds in the Building Maintenance Fund

– buildings have metering and control devices and energy is paid according to actual consumption;

– utility companies can provide a history of payment proving ‘transactional behavior’ of the HA

Distinction of EBRD’s financing vehicles: SEFFs working through commercial banks via credit lines

Different approaches depending on market development: Individual (retail) lending to households for measures at the level

of the house / apartment within defined eligibility list. (e.g Bulgaria)

Bundled approach - as above but with incentives and technical support to promote collectivised approaches to multi-apartment buildings (e.g. Bulgaria)

Direct lending to creditworthy housing associations or condominiums, together with technical assistance that supports institutional strengthening and implementation of EPBD (e.g. Slovakia)

Distinction of EBRD’s financing vehicles: Distinction of EBRD’s financing vehicles: design and administration design and administration

• Country specific and target group tailor made design

• High leverage of incentives to total investments (7.4 in Bulgaria and 5.1 In Slovakia), compared with 1.18 to 1.8 of other support programmes;

• Wide coverage of the sector (4 to 6.3 times more projects)

• Excellent and equal territorial distribution through the networks of local banks

• Fast disbursement rates

• Absorption capacity limited by market constrains only up to full potential of EE opportunities

Distinction of EBRD’s financing vehicles: Distinction of EBRD’s financing vehicles: implementation implementation

• Fair and equal rules for all the customers (regardless to income level, location, subjective judgement on eligibility)

• Simple, transparent and straightforward procedures (selection and decision making based on technical and economical eligibility only) – no subjective decisions of authorities

• High marketing leverage (mobilising resources of local banks combined with dedicated professional expertise of consultants)

• Experience on monitoring and reporting (years of experience on reconciliation of technical/banking and result oriented reporting)

Thank you!Thank you!

Alexander Hadzhiivanov

Energy Efficiency & Climate Change Team

European Bank for Reconstruction and Development

One Exchange Square, London EC2A 2JN

tel: +44 207 338 7605

fax: +44 207 338 7642