Nefco Support to District Heating (SUDH) in Ukraine (2018-2028) - NEFCO Support to DH in Ukraine (old fin code) Nefco Support to District Heating (SUDH) in Ukraine (2018-2028) This intervention aims to provide investment grants in support of projects within the district heating (DH) sector of Ukraine financed by NEFCO. The resulting investment programme will blend investment grants from Sweden, loans from NEFCO, capital contribution from the borrower and technical assistance also financed by Sweden in order to finance the development of modern and energy efficient district heating systems with a significant share of production based on renewable fuels and waste heat resources that will have demonstational and capacity building effects. It is expected that the programme efforts would result in at least (4) four demonstration projects in different medium sized Ukrainian cities. This could mean improved heating services for a population of 250,000-400,000 inhabitants in the cities in question and reduced carbon dioxide emissions in the range of 40,000-60,000 tons/year. The budget for this contribution is 60 MSEK for the period of 2018-2026. Insatsen syftar till att tillhandahålla investeringsbidrag för att stödja projekt inom den ukrainska fjärrvärmesektorn finansierade av NEFCO. Det resulterande investeringsprogrammet kommer att slå samman investeringsbidrag från Sverige, lån från NEFCO, kapital från låntagaren och teknisk assistans som också finansieras av Sverige för att finansiera utvecklingen av moderna och energieffektiva fjärrvärmesystem med en stor del av produktionen baserad på förnybara källor och ett värmesystem som utnyttjar överskottsvärme. Förväntningarna är att programansatserna ska resultera i minst fyra demonstrationsprojekt i olika medelstora ukrainska städer. Implementering av upp till fyra demonstrationsprojekt skulle kunna leda till förbättrade värmetjänster för 250 000–400 000 invånare i berörda städer och minskat koldioxidutsläpp inom ett intervall om 40 000–60 000 ton/år. Insatsens budget är 60 MSEK under perioden 2018-2026. The objective of the proposed programme is to demonstrate the development of modern and energy efficient district heating with a significant share of production based on renewable fuels and waste heat resources. It is expected that the programme efforts would result in at least four demonstration projects in different medium sized Ukrainian cities. As the district heating situation in Ukraine today is considered to be technically similar to the situation in the Nordic countries in the beginning of the 1970s, it is considered relevant to apply similar strategic considerations for development of the demonstration projects in Ukraine as have been successfully applied in the Nordic countries, thereby achieving full utilization of the benefits of modern district heating.
However, as there are considerable fundamental differences in the policy and regulatory environment between Ukraine today and the Nordic countries in the 1970s the programme also have the objective to challenge the policy and institutional framework and enhance market and customer orientation in the Ukrainian district heating sector, including methodologies for tariff setting, subsidy systems etc. The programme will be implemented with the ambition to create long-term sustainable effects. The strategic approach means also efforts to improve financial and social sustainability. In this context the gender dimension is important and the ambition is to integrate a gender perspective throughout the project cycle to improve gender equality in project participation, benefits and opportunities.
Better access to energy and improved living conditions also support the realization of the human rights of everyone to adequate housing, including sustainable access to energy for cooking, heating and lighting and support the capacity of Ukrainian municipalities to fulfil these rights. Other human rights considerations of the programme are the expected increase in the capacity of Ukrainian municipalities and municipal DH companies to manage funds and projects with transparency and accountability due to requirements stemming from NEFCO’s legal status as an IFI.
The proposed programme process is expected to contribute to the dissemination of information, awareness raising and capacity building related to modern and energy efficient district heating and strategies to achieve it among municipalities and district heating companies far beyond the cities where demonstration projects will be implemented.
The funding programme should provide an attractive financial opportunity to introduce and demonstrate sustainable and energy efficient district heating technology and design principles intended to support development. The ultimate achievement would be to demonstrate projects which are in compliance with EU Energy Efficiency Directive with regard to Efficient District Heating and Cooling.
The funding programme is proposed to include loans from NEFCO and a grant component for the physical investments as well as grant funded Technical Assistance. 
The following list of eligible investments is based on the outline for strategic development of district heating based on Nordic experience:
Demand side measures: Individual heating substation (IHS), heat meters, heat controllers for regulation of heat supply on a time and weather sensitive basis.
Heat distribution networks: Pre-insulated district heating pipelines in order to interconnect heating areas making it possible to close down inefficient boiler stations and allow for connection of waste heat sources and appropriate localization of district heating production units based on renewable fuels. Replacement of existing district heating pipelines is only eligible in exceptional cases for replacement of oversized pipelines to improve hydraulic balancing and reduce critically significant losses.
Sustainable production sources: Boilers for renewable fuels or connection of waste heat or geothermal sources for production of district heating. Boilers for biofuels shall be ascertained fuel supply from sustainable sources.
Renewable sources should be designed for base load production and should preferably cover minimum 50 % of annual heat demand on system level to comply with the EU Energy Efficiency Directive with regard to requirements for effective district heating and cooling. Investments in gas boilers are only eligible to cover peak load demands and as reserve for the design load on system level. Heat production based on gas should not exceed 50 % of the annual heat demand on system level.
The proposed programme’s specific targeting on demonstration projects in the district heating sector in Ukraine requires a profound knowledge and experience of the Ukrainian district heating sector and its current challenges. NEFCO’s accumulated experience during the implementation of the current DemoUkrainaDH programme represents a valuable basis for the continued efforts together with NEFCO’s experience from about 100 other implemented projects in the municipal sector in Ukraine during the last ten years.
A manageable number of projects, based on experience from the DemoUkrainaDH programme, can be estimated to about four projects, indicating a total project leverage of up to 20 MEUR, whereof the loan component 12 MEUR, the grant component 6.0 MEUR and local contribution 2.0 MEUR. Extension of the programme with additional demonstration projects may be possible subject to demand, achieved results and availability of funding.
Quantitative objectives for the programme are hard to set at the current stage. However, estimates indicate that implementation of up to four demonstration projects according to this concept could mean improved heating services for 250,000-400,000 inhabitants in the cities in question and reduced carbon dioxide emissions in the range of 40,000-60,000 tons/year.