Energy Efficiency in Kosovo Jas Singh Senior Energy

Energy Efficiency in Kosovo Jas Singh Senior Energy Efficiency Specialist Energy Unit, Europe and Central Asia Kosovo Donors Conference “Sustainable Energy Development in Kosovo” Pristina, May 14, 2013

Background 2

Importance of EE to Kosovo q Energy security q Reduces energy imports (Kosovo imported 572 GWh in 2012) q EE is cheapest, cleanest domestic energy resource (€ 1 invested in demand-side EE avoids over € 2 in supply-side investments) q Enhances economic growth q Reduces large public expenditures in energy and energy subsidies, creating fiscal space for other development priorities q Increases industrial competitiveness (EE reduces input costs) q EE pays off – recent German study found € 1 in EE resulted in € 4 -5 in benefits (increased tax revenues, lower costs, reduced unemployment/ subsidies) and creates 15 -19 jobs per € 1 million investment q Reduces environmental and social impacts of energy sector q Positive health impacts from reduced air pollution q Often least-cost way to reduce local and global air pollution q Helps mitigate social impacts of tariff reforms 3

Potential for EE in Kosovo q Energy Use by Sector %, 2% %, 9% %, 38% %, 26% Household Industrial Transport Agricultural %, 25% Source: MED, Energy Balance 2012 Services 4

Potential for EE in Kosovo q 9% indicative target set for NEEAP 2010 -2018 q 2. 2% total savings between 2010 -2012 q 3% target set for 2013 -2015 2012 (ktoe) 2018 (ktoe) Target* Savings from measures** Target* Estimated savings from measures** Residential 12. 40 28. 05 30. 64 46. 98 Services 9. 30 3. 86 12. 26 18. 91 Industry 7. 90 n/a 24. 84 14. 00 (TD) Transport 1. 40 n/a 24. 15 12. 00 (TD) Total 31. 00 31. 92 91. 89 3% 3. 1% 9% 9. 0% Sector Savings as % of base consumption Source: *1 st NEEAP and 2 nd NEEAP (first draft); ** Report on the implementation of the 1 st NEEAP, 2010 -2012, Kosovo 5

Potential for EE in Kosovo q 38 EE measures included in 1 st NEEAP period q Concentrated in the residential and services sectors (public sector only) q Includes select measures in the industrial, transport, agricultural sectors which account for 53% of energy use q EE potential for building sector in Kosovo is large q World Bank Institute (WBI) study found 47% of final energy consumption attributed to building sector and has an energy saving potential of 30 -40%, 250 GWh/year q € 1. 37 billion in investment needed for building sector (over 80% of investment needs are in the residential sector) q Simple payback period for municipal and central government buildings is 4 -5. 3 years 6

Key Findings of WBI Study – Building Sector Total Area (million m 2) Total Area (%) EE Potential (ktoe) EE Potential (% of primary energy supply) I. Residential 34. 72 76. 9 171. 74 7. 86 II. Municipal 2. 36 5. 2 16. 77 0. 77 III. Public Central 0. 18 0. 4 3. 60 0. 16 IV. Private & Commercial 7. 86 17. 4 46. 95 2. 15 45. 12 100. 0 239. 05 10. 94 BUILDING SECTOR TOTAL 7

Key Findings of WBI Study – Public Buildings MUNICIPALITY AND CENTRAL PUBLIC BUILDINGS I. Public Municipality Building Sector Total Area (m 2) Energy Consumption Expenditures (ktoe) (€ m. ) Energy Savings (€ m. ) 2, 360, 000 36. 69 33. 96 15. 52 1, 690, 000 23. 48 21. 73 10. 09 Health Buildings 393, 000 8. 07 7. 47 3. 10 Other Buildings 277, 000 5. 14 4. 75 2. 33 182, 000 7. 34 6. 79 3. 33 46, 000 2. 20 2. 04 1. 03 136, 000 5. 14 4. 75 2. 30 2, 542, 000 44. 03 40. 75 18. 85 Schools II. Public Central Hospitals Central Government TOTAL 8

World Bank Global Experience in Energy Efficiency 9

Barriers to Energy Efficiency Investments Equipment/ Service Providers Policy / Regulatory Ø Ø Ø Energy pricing and collections Procurement policies favor lower cost Import duties on EE equipment Unclear or underdeveloped EE institutional framework Lack of appliance standards and building EE codes, lack of testing, poor enforcement Limited and poor data Ø Ø Ø High project development costs Limited demand for EE goods/services Diffuse/diverse markets New contractual mechanisms (ESCOs) Limited technical, business, risk mgmt. skills Limited financing/ equity End User Ø Ø Ø Ø Ø Lack of awareness, high discount rates High upfront and project development costs Lack of ability to pay incremental cost Low EE benefits relative to other costs Perceived risks of new technologies/ systems Concept of EE is “virtual” – cannot see Mixed incentives Behavioral biases Lack of credible data High cost of financing Financiers Ø Ø Ø New technologies and contractual mechanisms Small sizes/widely dispersed high transaction costs High perceived risks –not traditional assetbased financing Competing investment opportunities with higher return, lower risk projects Over-collateralization Behavioral biases 10

Typical EE Financing and Delivery Models Model / Sector Industrial Commercial Public Residential Utility Demand-Supply Management (DSM) Energy service companies (ESCOs) Commercial EE financing Public EE financing Market transformation Incentives, subsidies, grants Capacity building, awareness raising, education 11

Choosing the Right Instrument In public sector, for example, there are many options… Market Commercial Maturity Financing Public Financing Advanced commercial financing (ESCOs) + can address financing and implementation issues and build ESCO capacity – Needs a mature market with operating ESCOs Commercial financing (loans/bonds) + can address financing issues – needs municipalities with strong borrowing capacity Partial credit or risk guarantees + may scale up commercial financing – needs mature banking sector and eligible borrowers; poor track record in several countries Dedicated credit lines + Leveraging of private funds – needs municipalities/ ESCOs that have borrowing capacity EE funds/Public ESCOs + Can be structured to address financing needs and evolving capacity of municipalities – challenging cost coverage from revenues Budget financing with budget capture + Easy to implement, can directly finance municipalities – Institutional sustainability is questionable Budget financing/Grants + Easy to implement, can directly finance municipalities – Sustainability is questionable 12

Lessons Learned and Remaining Challenges Lessons • • • EE is resource-intensive and requires a long-term focus Sector reforms have been crucial to create enabling environment and proper incentives for EE EE governance is critical to ensure strong policy/legal frameworks are in place and implementation is effective (e. g. , time-based targets with clear accountability) Development of efficient delivery mechanisms (e. g. , credit lines, ESCOs, utility programs, labeling schemes) are more important than technology Financing is available, but not always accessible and affordable Access to credible data and information, incentives, linking to other co-benefits (i. e. , improved comfort) are also needed Challenges • • Cost reflective pricing and universal metering reforms remain slow EE investment needs are massive requiring increased focus on leverage Emerging EE agencies are politically weak and under-resourced Credit lines for industrial and commercial sectors need to act as market catalysts Need for more robust, scalable and sustainable models for EE in public and municipal buildings Region has underdeveloped energy service/ESCO markets, weak legal and regulatory frameworks, mixed track record EE cuts across all sectors, requiring better cooperation with urban, water, transport, agriculture, health, education sectors 13

World Bank Experience with EE in Western Balkans q Recently implemented and planned projects total ~US$127 million for EE in public buildings q Energy savings typically 30 -45% per building, payback periods ~6 -8 years q Substantial co-benefits (improved comfort, urban renewal, public awareness, student education) q Willingness to co-finance q Lessons learned: q Limited replication of donor pilots and grants without sustainable funding mechanisms in place q Government project units orphaned after projects, loss of technical, implementation capacity q High energy cost savings means that projects can and should repay upfront investments q Difficult to scale-up; 20 -30 buildings/year average 14

World Bank Experience with EE in Western Balkans q Recommendations going forward q Need to develop centralized, sustainable institutional structures to provide public financing and allow donor funds to revolve, capacity to be retained and sustained q Need variety of instruments to serve both the creditworthy and poorer municipalities q Need to boost leverage—e. g. , pooling of donor funds, requirements for co-financing, bring in some commercial financing q More aggressively foster ESCOs and commercial financing structures q Need to better bundle buildings to scale-up impacts q Need to shift from project-based planning to programs with an emphasis on achieving macro goals (e. g. , NEEAP targets) q Need to better link policy and regulatory measures with projectlevel investments, need enforcement pressures to encourage 15 investments

Identifying the Gaps 16

Key Policies and Actions Taken by Kosovo Law on Energy Efficiency Obligates MED and municipalities to prepare EE action plans; MED to set up EE Agency and fund EE initiatives Kosovo Energy Efficiency Agency Established in April 2012 to implement the Energy Efficiency Law NEEAP 2010 -2018 As committed to under Energy Community Treaty, indicative targets for EE savings set at 9% by 2018; updated every 3 years Law on Energy Approved October 2010: Determines EE targets, encourages advanced metering systems, provides EE policy framework and subsequent implementation Law on Electricity Approved October 2010: Defines functions electricity market components and prepares for market opening (in line EU requirements) Law on the Energy Regulator Law on Construction Energy Efficiency Measures Funding Approved in 2010: ERO currently managing transition from single year to multi year tariff setting methodology Important features related to energy performance of buildings: Building code norms for new and renovation works, implementation of EE measures, certificate of compliance with EE measures MED support for measures defined in KEEP (seeking financial support from public budget, international organizations and donors) Under Law on EE, Municipal Energy Offices required to develop Municipal Energy Efficiency Plans Municipal EE Plans and Implementation Progress Reports (GIZ working with KEEA on 10 plans under EU funded project) Secondary Legislation Series of secondary legislation adopted (e. g. , appliance labeling, energy auditing, etc. ) 17

What are Donors Doing? Kf. W EU EBRD Industrial / Commercial Public Sector v Study and Implementation of EE measures in municipalities (30 buildings; EU and Kf. W financed) v Support to Pristina DH system, cogeneration v Grant-funded municipal EE project (63 schools, 2 hospitals) v Assistance to MED (staff training, NEEAP) (completed) v Public awareness campaign for EE (completed) v TA to update, monitor and evaluate NEEAP Residential v Pursing promotion of residential EE through bank loans v Creation of credit v Assessing credit line in SME/ (microloans) for buildings sector households GIZ v Modernization of municipal buildings (completed in select municipalities) v Public lighting modernization plan developed in several municipalities World Bank v Study and implementation of EE in public buildings (centrally-owned) v Review of financing options for public EE (WBI) v Review of financing options for residential EE (WBI) 18

Framework for Successful Energy Efficiency Programs Policy and Regulations • Overarching EE legal framework (EE Law) • Cost-reflective energy pricing • Codes/standard w/ enforcement mechanisms • EE incentive schemes w/ funding sources • EE targets by sector • Public budgeting/procurement encourages EE Information • Database on energy consumption • Industrial and building stock • Information center/case study database • Database of service providers, EE technologies, equipment providers • Broad, sustained public awareness • Appliance labeling Institutions • • Dedicated entity with EE mandate Clear institutional roles/accountability Inter-ministerial coordinating body Assignment of roles for monitoring and compliance enforcement • Authority to formulate, implement, evaluate and report on programs • Tracking on progress for EE targets Successful Energy Efficiency Programs Finance • Commercial bank lending (credit lines, guarantees) • Cashflow-based EE financing • Commercial ESCO financing • Public sector EE financing Technical • Residential home/appliance credit Capacity • Energy auditor/manager training and • Equipment leasing certification programs • Private sector training programs (banks, ESCOs/EE service providers, end users) • EE project templates (audits, M&V plans, EPC bidding documents, contracts) • Energy management systems developed 19

o Creation of suitable public financing scheme for municipalities (e. g. , EE revolving fund) o Industrial/SME and residential EE credit schemes o Cashflow and ESCO financing bank product development Information o Ongoing institutional capacity enhancements for KEEA o Develop program functions within KEEA (e. g. , program formulation, implementation, evaluation, monitoring/tracking) o Enhance government capacities for enforcement o Database of end users, consumption information o Sector and sub-sector EE potential and market studies (e. g. , transport, industry) o Information center (e. g. , case studies, EE projects, EE service providers, technologies/equipment suppliers) o Broad, sustained awareness campaigns Technical Capacity Institutions o Develop additional secondary legislation, rulebooks and enforcement mechanisms o Enhanced EE incentive schemes for private sector end users, with dedicated funding sources o Enabling environment for EE in public sector (procurement, budgeting) Financing Policy and Regulation What are the Remaining Gaps? o Develop/Implement certification scheme for energy auditors, energy managers o Development of project guides, ESCO bidding/contract models, M&V protocols, audit/baseline templates o Sustained training to private sector (end users, ESCOs, banks) o Platforms to share implementation experiences, project information o Increased capacity building with municipalities for EE planning, 20 implementation, reporting

Addressing the Gaps Government of Kosovo: • Develop and adopt needed secondary legislation, new EE Directive • Improve district heating supply, DH metering and billing, judicious DH system expansion • Seek measures to continually move towards cost reflective pricing • Create suitable public sector financing mechanism (e. g. , EE revolving fund) • Develop programs, incentives for all sectors for EE, particularly for households • Assess EE savings potential for additional sectors (e. g. , transport, industry) • Launch broad, sustained raising of public awareness on EE • Strengthen KEEA Donors: • Support development additional legislation, rulebooks based on international best practices • Help to design and implement appropriate financing and incentive schemes • Assist to identify investment needs for total EE potential and by sector • Support capacity building with KEEA and municipalities • Develop database on end users, consumption • Help create database of service providers, EE technologies, equipment providers • Provide private sector training programs (banks, potential ESCOs/EE service providers, end users) • Share EE project templates (audits, M&V plans, EPC bidding documents, contracts) 21

Thank you 22