Project Identification Form (PIF)
Project Type: Full-Sized Project
the GEF Trust Fund
Submission Date: 8 November 2007
Re-submission Date: 30 November 2007
Indicative CalendarMilestones / Expected Dates
Work Program (for FSP) / January 2008
CEO Endorsement/Approval / May 2008
GEF Agency Approval / May 2008
Implementation Start / June 2008
Mid-term Review (if planned) / Dec. 2010
Implementation Completion / June 2013
part i: project IDentification
GEFSEC Project ID[1]: 3535
gef agency Project ID:
Country(ies): Ukraine
Project Title: Creating Markets for Renewable Power in Ukraine
GEF Agency(ies): EBRD
Other Executing partner(s): Ukraine Ministry of Fuel & Energy
GEF Focal Area (s): Climate Change
GEF-4 Strategic program(S): CC-SP3-RE
Name of parent program/umbrella project:
A. Project framework (Expand table as necessary)
Project Objective: The proposed project will address policy, finance, business, and information barriers to renewable energy market developments in Ukraine resulting in estimated direct emission reductions of 4 million tones of CO2eq over the investment lifetime from 80MW of additional installed capacity. Post project indirect reductions may reach 500 million tones of CO2eq over the next 20 years.Project Components / Expected Outcomes / Expected Outputs / Indicative GEF Financing* / Indicative Co-financing* / Total ($)
($) / % / ($) / %
1. Policy Support / TA / Policy barriers to grid-connected renewables removed / * Primary & Secondary legislation developed
* Enhanced electricity grid protocols
* Rules and standards for RE devel. & operation / 500,000 / 63% / 300,000 / 38% / 800,000
2. Banking & Business Sector Development / TA / Business and information barriers reduced / * Local banks capacity to appraise investments enhanced
* Business sector capacity to develop projects strengthened
* Targeted information on investment opportunities delivered
* Field survey of potential sites
* Early stage project preparation facility established, including:
--- TA to local FIs, private investors, local engineering and consulting sectors
--- TA to potential investors for project preparation activities, such as business plans, feasibility studies, and preliminary designs / 1,700,000 / 71% / 700,000 / 29% / 2,400,000
3. Financing Facilitation / Investment / Renewable Energy investments facilitated / * Establishment of Ukraine Renewables Fund for participating financial institutions / 6,000,000 / 7% / 80,000,000 / 93% / 86,000,000
4. Project management / 250,000 / 24% / 800,000 / 76% / 1,050,000
Total project costs / 8,450,000 / 81,800,000 / 90,250,000
* List the $ by project components. The percentage is the share of GEF and Co-financing respectively to the total amount for the component.
** TA = Technical Assistance; STA = Scientific & technical analysis.
B. Indicative Financing Plan Summary For The Project ($)
Project Preparation* / Project / Agency Fee / TotalGEF / 133,870 / 8,450,000 / 858,387 / 9,442,257
Co-financing / 276,264 / 81,800,000 / 82,076,264
Total / 410,134 / 90,250,000 / 858,387 / 91,518,521
* Please include the previously approved PDFs and planned request for new PPG, if any. Indicate the amount already approved as
footnote here and if the GEF funding is from GEF-3.
C. Indicative Co-financing for the project (including project preparation amount) by source and
by name (in parenthesis) if available, ($)
Project Government Contribution / In Kind / 300,000
EBRD / Loan / 40,000,000
EBRD / Grant / 1,276,264
EBRD / In Kind / 500,000
Private Sector / Investment / 40,000,000
Total co-financing / 82,076,264
D. GEF Resources Requested by Focal Area(s), agency (ies) share and country(ies)*
(in $)GEF Agency / Focal Area / Country Name/ Global / Project Preparation / Project / Agency Fee / Total
EBRD / CC / Ukraine / 133,870 / 8,450,000 / 858,387 / 9,442,257
Total GEF Resources / 133,870 / 8,450,000 / 858,387 / 9,442,257
* No need to provide information for this table if it is a single focal area, single country and single GEF Agency project.
part ii: project JustiFication
A. State the issue, how the project seeks to address it, and the expected global environmental benefits to be delivered:
Although Ukraine has significant potential renewable energy resources, ranging from wind and small hydro sectors to geothermal and biomass, the market for renewable energy and related products and services remains small. Ukraine lacks a clear, long-term, transparent mechanism to develop renewable energy resources, combined with the required procedures and standards for development, permitting, licensing and connection of renewable energy capacity to the Ukrainian electricity grid.
The country has a large potential for expansion of renewable energy in the wind and small hydro sectors, in addition to geothermal and biomass. The development of renewable energy in the country is not only a priority due to the greenhouse gas reductions which could be realized but also to improve security of supply which has become an increasing concern in Ukraine following the gas crisis of January 2006.
However a number of barriers to the development of renewable energy exist. These include:
Policy, procedures and legislation
· Ukraine does not have a clear, long-term, transparent framework for the development of renewable energy.
· Procedures and standards for the development, permitting, licensing and connection of renewable energy capacity to the Ukrainian electricity grid do not exist.
Finance
· Local banks have limited access to technical expertise for appraisal. There is limited information about various renewable energy resources, and misconceptions exist about their technical risks and financial benefits.
· There is no specific marketing for financing renewable projects in the banking sector.
· As a result of lack of experience and uncertainties, renewable energy projects incur additional costs in appraisal, due diligence, and monitoring, making them less attractive to banks.
· There is insufficient access to adequate amounts of longer-term funding for renewable energy projects resulting from real and perceived risks: borrowers’ tenors beyond the banks’ current horizons are necessary for financing these types of projects.
Business skills and information
· There is uncertainty and lack of information about available options, best practice and related financial reward.
· Renewable energy investments are varied in scope and sector, and are difficult to appraise and finance. The establishment of a credit line through local banks could create an effective financing mechanism, with good technical support. Technical assistance is required to ensure the pursuit of good lending opportunities that are well assessed.
· Trade and investment promotion has been fragmented in the past by the type of technology being offered (e.g. PV cells or wind turbines). Potential purchasers lack the opportunity to gain an overview of all renewable energy options available.
· Few energy-intensive companies consider renewable energy resources as a tool for reducing energy consumption from fossil fuels, even in areas where wind or solar potential is favorable.
· There is also potential, as a follow-on, to explore related schemes to monetise greenhouse gas emission reductions, but local capacity to develop such projects is low.
The proposed project will address policy, finance, business, and information barriers to renewable energy market developments in Ukraine resulting in approximately 4 million tons of CO2eq avoided from 80 MW generated with renewable sources over the 5 year project period, and significant post-project emission reductions resulting from the adoption and enforcement of supportive policy and regulatory frameworks developed as a component of the project. Because Ukraine is such a large power producer (upwards of 192 TWh annually, with exports of more than 10 TWh), increasing the share of energy from renewable resources could have a significant impact on offsetting greenhouse gas emissions.
The focus of the project will be on kick-starting the market through establishment of a dedicated Renewable Energy Fund, capitalized by the EBRD, GEF, and other sources. The fund will be a source of loans to project developers, and will be supported by Technical Assistance throughout the supply chain to develop a flow of bankable projects. A possible schematic of the operation of the Ukraine Renewable Energy Fund is shown below. It is planned that up to 6 million USD of GEF funding will go towards loans, with the rest allocated to TA. During GEF project preparation (PPG) and execution other funding – for example from the EU – will be secured to support both loan and TA components:
The policy work, which will start under the PPG so as to minimize implementation risks, will aim to provide a regulatory and legal framework for grid-connect renewables.
B. Describe the consistency of the project with national priorities/plans:
While there have been isolated initiatives to promote renewable energy in Ukraine over the past 15 years, energy policy discussion in Ukraine has been dominated largely by the issues of energy efficiency, transit pipelines, and nuclear safety. Renewable energy resources have traditionally meant large hydroelectric facilities, which generate approximately 10 percent of power but have no potential for expansion. Recently, discussions of pricing reform and steps towards integrating the Ukrainian grid into the European grid have set the stage for more sustained and comprehensive attention to renewable energy resources.
New Energy Strategy of Ukraine to 2030, which was approved by the Cabinet of Ministers in March 2006, pays a special attention to renewable energy development and aims to quadruple the use of renewable energy, with a goal of achieving 19% of its share in primary energy supply by 2030. According to the Government estimates, this would require investing some USD 12 billion in the sector. The highest growth is expected in the use of biomass, solar energy, coalbed methane and low-potential heat, although this growth will start from a very low base.
A range of schemes to support the development of renewable energy sources have been established over the past 15 years. In 1996 wind energy was declared a national priority and a supplement added to electricity tariffs to create a state fund to support wind energy. However, to date only 85MW of wind capacity has been installed against the planned 190MW by 2010 (in 2003 there was already an installed capacity of 57MW, so the increase over 3.5 years has only been about 28MW). In 2006 the Parliamentary Committee for Fuel and Energy Complex prepared draft legislation to support renewable energy, including a draft law on green energy tariffs and separate legislation for support of small hydro generation. Both draft laws have been submitted to the Parliament in 2007 but have not yet been approved. However, even existing legislation is not effectively enforced and many provisions are not implemented in practice. The proposed project will help the Government of Ukraine to develop a more comprehensive policy and ensure it is properly implemented.
The government has signed a Memorandum of Understanding with the European Union that agrees to cooperation in developing alternative sources of energy. As part of the MoU, a Working Group on Energy Efficiency and Renewable Energy was created to support development of renewable energy and facilitate commercial-based financing in the sector.
C. Describe the consistency of the project with gef strategies and strategic programs:
The project contributes to the Strategic Programme on Renewable Energy (OP6), which aims to promote the supply of and demand for electricity from renewable sources of energy. The project focuses on policy reform and regulation, and addresses business and information barriers to market creation and private sector investment. In addition, the project contributes to Modern Energy from Sustainable Biomass, because it promotes the sustainable promotion of biomass for the provision of energy services.
D. Outline the Coordination with other related initiatives:
This project will build on work focusing on “Implementation of the Concept of the Wholesale Electricity Market of Ukraine” supported by the World Bank[2]. This project provides for development during 2007-2008 of the comprehensive legal framework of the new model of the electricity market of Ukraine in accordance to the Concept of Operation and Development of the Wholesale Electricity Market of Ukraine approved by the Resolution of the Cabinet of Ministers of Ukraine No. 1789 of 16.11.2002. That includes the preparation of the Balancing and Settlement Code, Grid Code, Distribution Network Code, and Procurement Rules for Ancillary Services. These documents will reflect the provisions related to particular characteristics of operation of electricity generators using renewable and alternative energy sources.
A ‘twinning’ technical assistance project of the European Union between the National Electricity Regulatory Commission of Ukraine (NERC) and the electricity regulatory agencies of Italy, Austria and Czech Republic “Strengthening of the Regulatory and Legal Capacity of the NERC with respect to Regulation of the Energy Sector” under the TACIS programme[3]. This project includes analysis and possible harmonization of the energy legislation of Ukraine and the EU, in particular relating to provisions on promotion of co-generation, electricity generation from renewable sources, energy efficiency, “green” and “white” certificates, and trade quotas. The issue of harmonisation of the energy legislation of Ukraine with the EU legislation and development of a Grid Code in accordance to the standards and practice of the European Union are also included into the TACIS project «Assistance to Ukraine in Gradual Connection to Trans-European Power Networks» being implemented in the Ministry of Fuel and Energy and Ukrenergo.
The GEF project also supports the longer-term potential of the Ukrainian Industrial and Residential Energy Efficiency and Renewable Energy Credit Lines (UKEEP) being established by the EBRD with up to EUR100m made available under a Framework for local banks. These credit lines, in the experience of the EBRD from other countries, will initially be almost entirely made up of industrial energy efficiency investments until the policy, capacity, information and finance barriers to grid-connect renewable energy investments are addressed.
E. Discuss the value-added of GEF involvement in the project demonstrated through incremental reasoning :
As has been mentioned above, a range of schemes to support the development of renewable energy sources have been put in place since 1996 to support renewable energy including creation of a state fund to support wind energy based on electricity tariffs. However the impact has been very limited with only 28MW of capacity being added over the past 3.5 years. This lack of progress can be attributed to the existence of policy, finance and business barriers that impede the development of renewables, and which will be addressed by this project. In the absence of the proposed EBRD-GEF project the market will, as a result of the existing policy, finance and business barriers continue under a business as usual scenario. At the present rates of growth this would mean a growth in about 40 MW of installed capacity during the next 5 years. This project will both add 80 MW of installed capacity to this baseline, and, as a result of barrier removal, unlock the potential for up to 100 MW of capacity to be installed per year.