KfW, EU, WBIF Termokos Cogeneration Project to improve DH connection (up to substations). Connection via a 10,5 km pipeline and heat exchanger and steam extraction of 140 MWth in the first phase to the thermal power plant (TPP) Kosovo B converting this TPP into a combined heat and power (CHP) plant. Total: €37 million Breakdown: €15 million KfW and German Government (5 million loan, 10 million grant) €14 million EU €1.8 million SIDA grant €1.5 million Luxembourg grant €1.2 million Kosovo Government grant €3.8 million Pristina Municipality KFW A new Termokos Project, which focuses on rehabilitation of District Heating Systems and its expansion in Pristina Substation rehabilitation (50 substations). Technical measures include modernization and/or renewal and/or replacement of pipes, heat sources and substations. €5 million KfW, WBIF A WBIF study and resulting implementation of EE measures in public buildings at the municipal level. The project covers approximately 30 buildings in four municipalities. The project contract was signed in January 2016. A ratification act is expected to take place soon which will cover public healthcare and education buildings. Total: €7.8 million total Total Breakdown: €2.8 million WBIF €5 million KfW loan/ grant European Union A European Commission (EC) and resulting implementation of EE measures at the municipal level in 65 buildings with grant support. This project is expected to close in 2016. This was implemented in order to achieve objectives related to the Energy Treaty. Pristina Network Grid Construction of the CHP plant in Gjakova (8MW thermal and a cogeneration unit of capacity 8.2MW thermal and 1.5MW electrical) based on biomass: corn stalks, wheat/barley, wood chips from forests, and vine pruning; €15.6 million EU-IPA grant €22 million euro (To be confirmed) € 987,350 European Bank of and Kosovo Sustainable Energy Projects (KoSEP) - Credit line for RE/EE projects in SMEs and household sectors through participating Total: €15 million Total Breakdown: €3 million EC grant €12 million EBRD loan
4.1 - Summary of Characteristics of Financing Options for Public Sector Energy Efficiency Projects Financing Option Conditions Pros Cons Issues to be addressed in Kosovo Examples 1. Budget financing with capital recovery Credit barrier is too high, underdeveloped banking sector, collateralization is difficult Financing should target new and underdeveloped markets, programs must be efficiently administered, initial subproject results should be intensely disseminated, need viable Availability of funding for EE projects Easy to implement Can directly finance municipal entities and central government agencies Sustainability may be questionable, even if repayment is obtained through budget financing Who will manage and administer the funds? Is there sufficient implementation capacity? Hungary Lithuania Armenia, Belarus FYR Macedonia Montenegro Serbia 2. Utility on-bill financing Requires regulations for utility participation Strong financial position and financial management of utilities Payment discipline among public clients, adequate energy pricing and billing practices Streamlined repayments, lower repayment risk if risk of utility disconnection, Builds off of utility relationships and services Can be done on a sustainable and scalable basis Requires changes in utility regulations and billing systems Creates potential for monopolistic behaviors Financing may compete with local banks, Limited experience with heat utilities Are Kosovo utilities interested and willing? Do they have capacity and billing systems for on-bill financing? What regulatory changes may be needed? Brazil India Mexico Sri Lanka Tunisia U.S. Vietnam 3. Energy efficiency revolving fund Insufficient liquidity in banking sector, major aversion to risk among lenders Use of grant funds as subordinated debt can help mobilize commercial TA to disseminate information on EE subproject performance/financial data critical to sustainability Need for professional, Fund Management Team Can be structured to address financing needs and evolving capacity of all public buildings (central and municipal) ESA option can be very useful for municipalities with poor credit and lack of capacity May require new legislation May be difficult to cover administrative costs of the fund from its revenues Needs a strong and capable fund manager or management team Needs supporting legislative framework for establishment Bulgaria Romania Armenia
7. Risk-sharing program (such as partial credit guarantee) Well-developed banking sector, are liquid and willing to accept some risks but have a perception of high risk with respect to EE projects Sufficient market activity to develop project pipeline Has worked well in some Central and Eastern European countries May scale up commercial financing Needs a relatively mature banking sector and eligible borrowers Poor experience of WB and in some countries with respect to public agencies Is the banking sector mature enough? How many municipalities are creditworthy? USAID DCA in FYR Macedonia, Bulgaria and other countries Bulgaria, CEEF (Central/Eastern Europe), China, Croatia, Hungary, Poland 8. Commercial financing, bonds Requires well-developed public sector credit and rating systems Financiers willing and able to lend to public sector for EE projects municipalities with strong technical capacity willing to bundle many EE projects together Mobilizes commercial financing can deliver scale and be sustainable Elements of competition can help lower financing costs Can help address overcollateralization/short tenor issues Only makes sense for very large bundles of projects Only highly creditworthy agencies can use these schemes Relatively high transactions costs Are financiers willing and able to lend to public sector? How many public agencies are creditworthy and have borrowing capacity? Bulgaria Denmark India U.S. 9. Vendor credit, leasing Large, credible local and/or international vendors able and willing to finance public EE projects Local bank financing available for vendor leasing Creditworthy public agencies able to sign long-term vendor contracts Public agencies able to retain energy cost savings, pay based on consumption Mobilizes commercial financing which can deliver scale and be sustainable Can help address tenor issues Financing and procurement in one contract Lease may not count against public debt Relies on local banks and leasing companies Serves only very creditworthy public agencies, Vendors must assume substantial debt and offer financing Only some building equipment suited for leasing (lighting, SWH, boilers) How many public agencies are creditworthy and have borrowing capacity? China EU U.S. term
10. Leveraging commercial financing using private ESCOs/performance contracts Supportive policies and enabling environment Introduction of simpler business models Appropriate financing schemes Early market development through public sector projects Development of public-private partnership (PPP) models to kick-start market Mobilizes commercial financing which can deliver scale and be sustainable, Helps address overcollateralization/short tenor issues ESPC may not count against public debt, public agency shifts technical risks to party Needs local banks and ESCOs to provide reasonable cost financing and assume credit risk Serves only very creditworthy public agencies ESCO industry is difficult to develop Public procurement issues difficult to address Are there any private ESCOs in the market? Are private ESCOs and/or municipalities creditworthy for commercial project financing? WB China ESCO program Czech Republic Germany Hungary India Japan South Korea U.S. Canada Source: Adapted by authors from World Bank 2013b
Table 5.1 – Key Characteristics of the Public Sector Energy Efficiency Financing Options in Kosovo Context Characteristics Budget Financing with Capital Recovery EE Revolving Fund Dedicated Public Sector Credit Line Risk-Sharing Program Public or Super ESCO Private ESCOs & Performance Contracting Type of Financing Loans and TA; may include some grants Loans, TA, ESAs TA Guarantees, TA Loans Loans Public Entities Served* I, II and III I, II and III I only I and III I, II and III I and III Management and Governance Project Implementation Unit (PIU) within MOF of directors Fund management team IFI, participating financial institutions IFI, participating financial institutions Board of directors IFI, participating financial institutions Project Development By PIU Fund management team Participating financial institutions Participating financial institutions Management team of public or super ESCO Private ESCOs Project Implementation By Type I municipalities and Type III central entities PIU may implement for Type II & some Type III Type I municipalities; Type III central entities Fund Mgmt. Team via ESA for Type II and some Type III Type I municipalities Type I municipalities and Type III central entities Management team of public or ESCO Private ESCOs Advantages Easy to implement Analogous to some existing models Can address all types Addresses needs of all three types Multiple windows (including ESA) to address financing needs and evolving capacity of municipalities Can leverage commercial financing Existing credit lines provide experience Can leverages commercial financing Existing guarantee programs provide some relevant experience Can address needs of all three types Multiple windows to address financing needs and evolving capacity of municipalities Can address needs of all three types Can leverage commercial financing Limitations Requires capable PIU Sustainability not assured of Type municipalities & some Type III may not be easily met Needs new legislation for implementation Need a strong and capable Fund Management Team Cannot address needs of Type II municipalities Only serves municipalities or ESCOs that have borrowing capacity Cannot address needs of Type II municipalities Only serves municipalities or that have borrowing capacity Need the creation of new organizations capable management team Need a mature ESCO industry ESCOs need to have borrowing capacity Can be Implemented under Current Regulations? Yes No Yes Yes Yes, but requires creation of a new company Yes Source: Authors * Types of public entities: I – Creditworthy public agencies with their own budgets; II – Public agencies without their own budgets, having poor credit, and/or little or no capacity to implement projects; III – Central government Entities.