МІНІСТЕРСТВО РЕГІОНАЛЬНОГО РОЗВИТКУ

Energy Efficiency of buildings reform

Strategic vision and the role of municipalities

December 1, 2015

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Current state of the heating sector (selected indicators)

2.0хhigher heat consumption per m2 comparing to EU countries with similar climate

40% multistory buildings with heat meters installed

20%multistory buildings have condominiums (HOA) and can independently perform EE measures

10 bcmexcessive gas consumption in heating sector

Source: Team analysis

3

Economic potential estimated at USD 5 bln per annum

2 bln USD 2 bln USD Annual reduction of HUS

subsidiesAnnual reduction ofnatural gas imports

1 bln USD EE buildings market capacity per annum

Energy independenceand decrease of Russia`s

political influence

50-100 thsNew jobs

20 million tonsAnnual reduction of CO₂

emissions

Source: Team analysis

4

Success of the reform relies on 3 pillars

Legislation environment ~8 Primary Laws,

~40 Secondary Laws

Financial mechanisminvestment needs of

~USD 50 bn

Communicational campaign

83% of population consider tariffs as non transparent and unfair

Target – 10 bcmdecrease of annual gas consumption

and imports

CONFIDENTIAL

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EE market is the tool to achieve the goal of the reform

Funding sources

State Budget Consumers

BanksDonors and

IFOs

Business (ESCO)

0,9 bcmReduction of annual gas consumption and import

2,0 million tonsReduction of annual CO₂

emissions

250 mln USDAnnual reduction of

utility bills for consumersConstant exposure

to trade balance (cost of gas imports)

200 mln USD

The predicted effect on 1 bln USD investments in EE projects

Source: Team analysis

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Mid-term effect forecast (5-7 years)

The amount of investments

The annual reduction in energy consumption

(in gas equivalent)

New jobs creation

Reform effect depending on investments attracted

1,5 3,0 5,0USD bln

1,2 1,7 2,3bcm

30 50 100Source: Team analysis

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Legislative environment development progress (selected acts)

Framework EE legislation• Law “On EE” (Directive 2010/27/EU)• Methodology of EE indicators monitoring

Energy efficiency in consumption• Law “On ESCO” (adopted) • Law “On condominiums” (adopted)• Law “On EE of buildings” (Directive 2010/31/EU)• Law “On HUS” and “Commercial metering”

EE in heat supply and of distribution• Law “On mandatory thermoregulation stimulation” • Law “On regulation of heating areas”

Key changes in legislation~8 Laws, ~40 Secondary Acts

Coordination with Donors and IFIs

(monthly meetings)

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EE support program launched in late 2014

Government compensates certain percent of loan principal (for loans provided for EE measures)

UAH 1 050 mlnloans granted as of 11.23.2015

20% 30% 40% 70%of loan principal for solid fuel boilers for

ind. houses

of loan principal for other EE equipment

materials for households

of loan principal for EE equipment and materials for HOA

of loan principal for households, who

receive HUS subsidies

Since Nov 2014 Since May 2015 Since Aug 2015

Source: SAEE as of 11.23.2015

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2.312.4 28.0 29.4 35.0 41.4 50.2 71.0

130.4

250.1

389.5

583.1

810.9

1,054.5

11/1/2014 12/1/2014 1/1/2015 1/28/2015 3/12/2015 4/1/2015 5/5/2015 6/8/2015 7/6/2015 8/3/2015 8/31/2015 28.09.2015 26.10.201523.11.2015140 737 1,604 1,688 2,007 2,339 2,838 3,983

7,40014,461

23,107

34,756

49,113

64,981

Solid fuel boilers27%

Materials for households

72% Materials for HOA1%

Program participation rate increases, but HOA share is low

EE loans dynamics (accumulated)

Number of loans, ths

Amount of loans, UAH mln

EE loans segmentation as of 23.11.2015

Source: SAEE as of 11/23/2015

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Local authorities support makes a difference

Average for Ukraine Lviv oblast

43.9

114.9

Additional compensation of 15-20% interest rate for loan (Lviv oblast)

Amount of loans granted under the Program, UAH mln

х 2,6 times

Source: SAEE as of 11/23/2015

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EE measures prioritization should be done properly

Thermoregulation and heat metering(Installation of meters and IHU)

House insulation

Heat production and supply

In the absence of metering and regulation there is no possibility to reduce HUS bills

Will avoid redundant production capacity and infrastructure

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Measures can be implemented simultaneously (e.g. installation of IHU and insulation) Measures at HOA level are much more effective than individual measures at

apartments level

Source: Team analysis

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S2I Fund shall provide financing and institutional support

S2I Fund

InternationalDonors

State Budget

Households/HOA*

Return on investments through savings and

subsidies

EE Projects

Funding

Savings

Subsidies

Funding

Banks, IFOs, ESCO

25%current interest rate

5-10%interest rate for EE projects

financing through the S2I Fund

Technical and administrative projects support:

Energy audit and technical supervision Fund institutional Support at CEB level Municipalities and local authorities Programs of technical assistance from

donors and IFOs

S2I Fund (simplified model)

*HOA – house owners association

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Municipalities’ role in EE buildings renovation (example of Lithuania)

State support program for multistory buildings renovation(preferential loans, grants, technical assistance)

HOA Municipalities Project Administrator(private or municipal)

Energy audit (investment plan)

Project documentation

Technical supervision

Projects works

Up to 35% grant3% loan

Up to 100% reimbursement

Up to 100% reimbursement

Up to 100% reimbursement

oror

751 (20%)approved projects

2 907 (80%)approved projects

3 658 approved projects (10% of total multistory building stock) in 2013-15 80% of the projects initiated and administered by municipalities

Source: BETA, as of 11.06.2015

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Local authorities support of EE programs in the housing sector

The program for EE loans principal reimbursement

extended for 2016(CMU №929 of 11.11.2015)

S2I Fund launch planed for 2016

(supported by the German Government and the EU

Commission)

UREEFF program launch scheduled for 2016 (administered by EBRD)

Local authorities support for EE projects implementation in residential sector

Popularization of EE measures among

population and creation of condominiums

Active participation in initiation and administration

of projects (Lithuanian experience)

Participation in projects financing

(Lviv experience)

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UAH 4,7 blnfor 2016

State Regional Development Fund

USD 382 mln Ukraine District Heating Energy Efficiency Project

EUR 500 mln(part on EE)

Untied financial loan

EUR 200 mln(part on EE)

Ukraine Early Recovery loan

EUR 400 mln(part on EE)

Ukraine Municipal Infrastructure Program

EUR 96 mln Eastern Partnership on Energy Efficiency and Environment (E5P Fund)

Sources of EE financing for municipal projects

Source: Team analysis

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Technical Assistance in EE

~ USD 100 mlntotal budget of technical

assistance in EE*

Technical assistance for projects implementation

Grant funding component

Institutional development

Trainings/seminars

Source: Team analysis

* donors projects only subjected to registration in METD