ENERGY EFFICIENCY INVESTMENTS
Guide to investments in municipal energy efficiency projects
TABLE OF CONTENTS
Introduction
Part One
ENERGY EFFICIENCY PROJECTS IN MUNICIPALITIES
Types of projects
Projects in buildings
Projects in street lighting systems
Projects in district heating systems
Business Plan
The borrower
Information about the project
Environmental benefits
Profitability of the measures and the project
Project costs
Project financing
Cash Flow analysis
Sensitivity and risk analysis
Layout and presentation of the Business Plan
Implementation of the projects
Bank crediting of the project
Selection of executing agency
Project management
Building and installation works
Supervision and testing
Commissioning into regular operation
Training of personnel
Part Two
MECHANISMs FOR FINANCING OF ENERGY EFFICIENCY PROJECTS
Incentive financial mechanisms
Market-based financing mechanisms
Financing through a bank loan
Financing through a bonds loan
Third party financing
Leasing purchases
Energy services companies (ESCOs)
Performance contracting
Shared savings contract
Contract for debt repayment from achieved savings
Contract for heating supply
Commercial credit
Financing through holding shares in the property
Financing by the power supply utility
Mechanisms based on trading in reduced carbon emissions
Financing by the World Bank Prototype Carbon Fund
Financing through JI projects
Use of concession contracts in energy efficiency projects
Joint ventures with the private sector
Selection of financing scheme
Part Three
ENERGY EFFICIENCY FUNDS AND PROGRAMMES
National funds
Enterprise for Management of Environmental Protection Activities
National Trust EcoFund
Fund for Decommissioning of Capacities at Kozloduy NPP
Programmes of the European Commission
ISPA Programme
SAPARD Programme
Programmes of The Netherlands’ Government
Programme for Economic Co-operation
Programme for Support of the Process of Social Transformation in the Countries of Central and Eastern Europe
Environment for Europe Fund of the British Government
Programme of the Government of Japan
Export-Import Bank of the United States
REFERENCES
Foreword
This Guide to Investments has been worked out in the framework of the project “Energy Efficiency Strategy to Mitigate GHG Emissions. Energy Efficiency Demonstration Zone in the City of Gabrovo, Republic of Bulgaria”, financed by the Global Environmental Facility through the United Nations Development Programme. It is designated for decision-makers and experts from the municipal administrations, who are responsible for the implementation of energy efficiency programmes and projects
The information and recommendations published in this Guide are based on the practice in Bulgarian municipalities and the experience of the developed countries. The materials have been selected and processed by EnEffect.
Introduction
When deciding to implement a project it is important to select and combine the financial, technical and organisational factors related to its implementation in a way that can ensure least-cost on the required investments and can facilitate project implementation. Parallel to it, however, when deciding on the application of a specific financing mechanism, it is important to evaluate not only its specific characteristics but also our preparedness to make it work.
This Guide has been worked out in the framework of the project “Energy Efficiency Strategy to Mitigate GHG Emissions. Energy Efficiency Demonstration Zone in the City of Gabrovo, Republic of Bulgaria”, financed by the Global Environmental Facility through the United Nations Development Programme. The objective of the Guide is to present in a synthesised manner the major knowledge needed by the officers from municipal administrations and the management bodies of municipal companies when making investment decisions. The Guide can be used in the preparation of documentation for elaboration of business plans, in the evaluation of a given investment project and for checking already developed business plans as regards their completeness and the correctness of the assumptions and calculations
Energy efficiency projects depend on the interaction of a multitude of factors, among which the technical possibility of achieving substantial energy savings is just one of the required conditions. It has been found out, that in the majority of cases the selection of an appropriate financing mechanism is a matter of key importance for the success of the projects. The financing mechanisms and schemes, which are most frequently used in energy efficiency projects, are presented in the Guide in terms of their advantages and limitations. Information is provided also about local and international funds and programmes that grant financing for feasibility studies, design and investment costs for projects in the field of energy efficiency
Part One
ENERGY EFFICIENCY PROJECTS IN MUNICIPALITIES
This part deals with the main types of energy efficiency projects in Bulgarian municipalities and presents some characteristic examples from the national practice. The structure of a Business Plan and the requirements with respect to the presentation of the information in it are illustrated. Review is made of the major issues related to the organisation of project implementation
Types of projects
Energy efficiency projects in municipalities might be oriented towards reconstruction of the energy systems in three main groups of sites – buildings, district heating and street lighting. The reiterative nature of a number of measures and technical solutions in the projects in buildings and street lighting systems provides an opportunity for their packaging (grouping) for simultaneous implementation. This approach facilitates procurement of bank financing and negotiation of better price levels for supply of materials and equipment for their implementation
Awareness of which are the main types of energy efficiency projects in municipalities permits to make relatively accurate presumptions about the volume of required investments and the estimated savings to be achieved. Depending on the sites in which they will be implemented, we distinguish the following most common types of energy efficiency projects in municipalities:
- Projects in municipal buildings: administrative buildings, schools, kindergartens, hospitals and social care establishments;
- Projects in street lighting systems;
- Projects in district heating systems.
Projects in buildings
The most common types of measures envisaged in projects in municipal buildings comprise measures on the in-house space heating and lighting systems and on the building envelope (insulation and weather-stripping of doors and windows). Depending on the technical specifics of the measures and the manner of operation of the buildings, the projects vary within broad limits in respect to both the costs of the applied measures and the profitability of the projects. In the process of elaboration of a given project it is recommended to select such measures, whose combined action will produce sufficient amount of savings to ensure repayment of investments within about five years. This recommendable limit has been determined by the circumstance that long-term bank crediting in Bulgaria is generally lent for a payoff period not longer than five years. In addition, it should be remembered that despite the long life cycle of energy efficiency projects (10-15 years), the real revenue from them, measured through the purchasing power parity (discounting of the project revenue), diminishes significantly with the advance of the period of operation.
The requirements with respect to the comfort of habitation rank the first in the case of implementation of energy efficiency projects in municipal buildings (schools and hospitals) because of their specific public functions. The aim is that the measures envisaged in the project should ensure corresponding to the modern standards parameters of lighting and space heating and at the same time produce real energy savings. The implementation of this task frequently stumbles upon the problem caused by the unsatisfactory hygiene parameters in these buildings prior to project implementation, and respectively the low baseline of energy consumption in them. The substance of the problem is that in practice part of the fundssaved as a result of energy savings is spent for upgrading of the hygiene-related indicators for heating and lighting of the premises to their norm values and hence the direct economic effect from the project is diminished.
Box 1
DEMONSTRATION PROJECT IN THE OTETZ PAISSIY SCHOOL IN GABROVO
The Otetz Paissiy School in Gabrovo (built in 1983) is attended by about 1000 pupils, studying in two shifts – from 7 a.m. till 7 p.m. The number of teaching and auxiliary personnel is 120 people. The building, which consists of 7 sections, is connected to Toplofikatsiya (District Heating) Gabrovo SPSCo. Heat is supplied via three indirect substations, each of which is equipped with a heat meter, however there are no instruments for automatic regulation and control of heat supply. Heat supply is irregular and the indoor temperature in the premises is significantly lower than the approved norm requirements. The window franmes in the school are wooden, two-wing type. The design solution of artificial lighting comprises luminaries with 2 fluorescent 89 W tubes each. More than 60% of the light sources envisaged in the project design are not operating or are missing; the installed plastic light dispersing units diminish the coefficient of efficiency of the luminaries by more than 40%.
The normalised energy consumption[1], which is used as the basis for determination of the savings achieved from project implementation, is 1698MWh/year for heat supplied by the TPP and 206MWh/year for electricity. The project envisages implementation of three packages of energy conservation measures: 1) repair and restoration of windows (frames), weather-stripping and replacement of two of the entrance doors to the building by new ones with thermal insulation; 2) automation of the three indirect substations to ensure automatic control of heating and optimum use of heat depending on the outdoor atmospheric conditions and the occupants’ preferences; 3) replacement of the existing 543 fluorescent light sources (2 x 80 W) by energy efficient ones (1 x 58W). The investments for project implementation are USD 46700 and the annual savings – USD 15210. The Payback Period of the project is 2,7 years at 31% Internal Rate of Return.
It is recommended to combine the implementation of the energy efficiency measures in buildings with the current repair works for maintenance purposes. In this way it is possible to diminish the project costs, to facilitate the implementation of the building and installation works and to rationalise the entire process.
Table 1 presents several energy efficiency projects in school buildings, developed in the framework of the training programme for municipal experts. The applied energy efficiency measures and the major technical and economic indicators of the projects are illustrated. For the sake of comparison the relative indicators “investment per 1m2 heated area” and “investment per occupant” have been introduced. These indicators might be used also for orientation and comparison in the case of determining the approximate volume of investment requirements for other projects, although this should be resorted to with great care at full awareness that this method is very inaccurate and conventional.
Table 1.Energy efficiency projects in municipal buildings – major technical and economic indicators
Municipality / Unit / Occupants – pupils and staff / Heated area(m2) / Investment
(BGN) / Net savings (BGN) / Payback period
SPB
(years) / Investment per occupantBGN/capita / Investment per heated area
BGN/m2
Gabrovo
Otetz Paissiy School / Total / 1 120 / 8 754 / 109 308 / 38 084 / 2,9 / 97,60 / 12,49
Weather-stripping of windows / 1 120 / 8 754 / 70 090 / 25 684 / 2,7 / 62.58 / 8,01
Automation of three substations / 1 120 / 8 754 / 11 298 / 7 994 / 1,4 / 10,09 / 1,29
Fluorescent lamps / 1 120 / 8 754 / 27 200 / 3 900 / 7,0 / 24,29 / 3,11
Water-saving shower faucets / 1 120 / 8 754 / 120 / 266 / 0,5 / 0,11 / 0,01
Reflector screen / 1 120 / 8 754 / 600 / 240 / 2,5 / 0,54 / 0,07
BourgasOtetz Paissiy school for handicapped children / Total / 177 / 1 295 / 28 150 / 9 095 / 3,1 / 159,04 / 21,74
Storage heaters / 133 / 1 295 / 2 500 / 7 123 / 0,4 / 18,80 / 1,93
Weather-stripping of windows / 133 / 1 295 / 2 500 / 13 727 / 0,2 / 18,80 / 1,93
False ceiling / 133 / 1 295 / 16 000 / 34 706 / 0,5 / 120,30 / 12,36
Fluorescent lamps / 133 / 1 295 / 7 150 / 3 351 / 2,1 / 53,76 / 5,52
OmurtagAcademician D. Yordanov Junior High School / Total / 693 / 4 776 / 77 814 / 59 563 / 1,3 / 112,29 / 16,29
Fuel shift from naphtha to propane-butane / 600 / 4 776 / 34 200 / 39 970 / 0,9 / 57,00 / 7,16
Boiler replacement, automation / 600 / 4776 / 16 800 / 12 371 / 1,4 / 28,00 / 3,52
Weather-stripping of windows / 600 / 4776 / 17 064 / 6 014 / 2,8 / 28,44 / 3,57
Reflector screen / 600 / 4776 / 2 250 / 653 / 3,4 / 3,75 / 0,47
Thermostatic valves / 600 / 4776 / 7 500 / 1 856 / 4,0 / 12,50 / 1,57
Yambol
V.Levski Secondary School / Total / 1 444 / 5 149,5 / 80 505 / 32 099 / 2,5 / 55,75 / 15,63
Boiler replacement, automation / 1 290 / 5 149,5 / 36 000 / 17 331 / 2,1 / 27,91 / 6,99
Weather-stripping of windows / 1 290 / 5 149,5 / 5 340 / 2 705 / 2,0 / 4,14 / 1,04
Thermostatic valves / 1 290 / 5 149,5 / 3 799 / 4 648 / 0,8 / 2,94 / 0,74
Fluorescent lamps / 1 290 / 5 149,5 / 19 910 / 2 283 / 8,7 / 15,43 / 3,87
Roof insulation / 1 290 / 5 149,5 / 15 456 / 5 132 / 3,0 / 11,98 / 3,00
Karlovo
Hristo Prodanov School / Total / 1 178 / 5 097 / 124 638 / 24 081 / 5,2 / 105,80 / 24,45
Boiler replacement, automation / 1 178 / 5 097 / 26 500 / 10 003 / 2,6 / 22,50 / 5,20
Weather-stripping of windows / 1 178 / 5 097 / 33 528 / 10 738 / 3,1 / 28,46 / 6,58
Reflector screen / 1 178 / 5 097 / 2 400 / 678 / 3,5 / 2,04 / 0,47
Thermostatic valves / 1 178 / 5 097 / 14 400 / 2 662 / 5,4 / 12,22 / 2,83
Kazanlak
Antim I School / Total / 1 500 / 6 834 / 47 810 / 23 620 / 2,0 / 31,87 / 7,00
Boiler replacement, automation / 1 500 / 6 834 / 28 500 / 14 300 / 2,0 / 19,00 / 4,17
Weather-stripping of windows / 1 500 / 6 834 / 14 750 / 6 730 / 2,2 / 9,83 / 2,16
Thermostatic valves / 1 500 / 6 834 / 4 560 / 2 590 / 1,8 / 3,04 / 0,67
Kindergartens
Varna
Mecho Puh Kindergarten / Total / 140 / 1 880 / 29 166 / 8 253 / 3,5 / 208,33 / 15,51
Weather-stripping of windows / 140 / 1 880 / 5 524 / 1 420 / 3,9 / 39,46 / 2,94
Reflector screen / 140 / 1 880 / 839 / 244 / 3,4 / 5,99 / 0,45
Thermostatic valves / 140 / 1 880 / 4 687 / 1 309 / 3,6 / 33,48 / 2,49
Automation of the boiler / 140 / 1 880 / 18 116 / 5 280 / 3,4 / 129,40 / 9,64
Sliven
Papazian Kindergarten / Total / 146 / 1 645 / 14 388 / 4 018 / 3,6 / 98,55 / 8,75
Automation of the substation / 146 / 1 645 / 2 500 / 1 184 / 2,1 / 17,12 / 1,52
Weather-stripping of windows / 146 / 1645 / 4 992 / 1 284 / 3,9 / 34,19 / 3,03
Thermostatic valves / 146 / 1645 / 2 726 / 652 / 4,2 / 18,67 / 1,66
Fluorescent lamps / 146 / 1645 / 4 170 / 898 / 4,6 / 28,56 / 2,53
Dobrich
Kindergarten No. 10 / Total / 144 / 795 / 10 640 / 3 088 / 3,4 / 73,89 / 13,38
Weather-stripping of windows / 144 / 795 / 2 600 / 551 / 4,7 / 18,06 / 3,27
Domestic hot water preheating by a boiler / 144 / 795 / 1 800 / 1 240 / 1,5 / 12,50 / 2,26
Automation of a gas-fired boiler 120 kW / 144 / 795 / 6 240 / 1 297 / 4,8 / 43,33 / 7,85
Projects in street lighting systems
Energy efficiency projects in street lighting systems rank a priority for local authorities, since in the majority of Bulgarian cities these systems are in a poor technical state, while the costs for their electricity consumption are quite high – both because of the low efficiency of the systems and because of the increase of energy prices as a consequence of their liberalisation. An ever-growing number of municipalities invest in renewal of their street lighting systems despite the controversial regulatory framework concerning ownership on street lighting. The motivation is most commonly related to improvement of the quality of this public service, however at the same time the projects for reconstruction of street lighting systems feature also excellent economic indicators. Thanks to the savings of electricity (and electricity bills), the projects are paid back within a period of 2-3 years, while at the same time significantly higher indicators for lighting quality level are achieved. The technical solution is often related to the application of a set of measures, comprising replacement of the existing high-pressure mercury incandescent lamps by more efficient high-pressure sodium lamps and introduction of a centralised system for lighting control, which eliminates untimely or erroneous switching on of street lighting.
Irrespective of the existing special price rate for electricity for street lighting, the costs could be reduced further through the application of multi-rate (two- and three-rate) metering of electricity consumption.Its introduction wherever it is non-existent is an important measure for improvement of the economic parameters of the projects.
Box 2
RECONSTRUCTION OF THE STREET LIGHTING IN GABROVO
The project was realised as a demonstration project – its objective was along with the improvement of the energy efficiency of the street lighting system in Gabrovo to test in practice certain technical schemes and financing mechanisms and their applicability in operations for renewal of street lighting. The technical solution envisaged the application of the following measures: replacement of the existing high-pressure mercury incandescent lamps by energy efficient high-pressure sodium lamps and fluorescent lamps (respectively, replacement of the luminaires and re-design of the upper carrying portion of the lighting columns – the fork pieces); installation of a modern centralised system for control of street lighting switching ON and OFF at night and semi-night duty along the city main roads and arteries. A total of BGN 1 073 386 was invested for the full implementation of the project. Annual electricity savings to the amount of 5 729 MWh were achieved as a result of the application of the energy efficiency measures. The annual cost savings amount to about BGN 619 056. The Payback Period of the project is 1,7 years at 38% Internal Rate of Return.
According to the legislation in force till 2003 the street lighting systems were owned by the electricity distribution companies. The maintenance and repair costs were paid from the budget of these companies (“Annual repair activities” Item), while the costs for electricity consumed were paid from the budget of the municipalities.
With the approval of the new Energy Act (SG Vol. 107/9 December 2003) municipalities have already become owners of the facilities for outdoor artificial lighting of streets, public squares, parks, gardens and other real estates, which have the status of public municipal property. According to the dispositions of the law within two years of its enforcement the ownership rights on all facilities for outdoor artificial public lighting in population centres, which are presently included in the material assets of energy enterprises, should be transferred free-of-charge to the municipalities. On the other hand, the Energy Efficiency Act (SG Vol. 18/ 5 March 2004) obliges the mayors to ensure construction, operation, maintenance and development of the networks and facilities for outdoor public lighting on the area of the municipalities for real estates, which are public municipal property. The funding for these activities (after the transfer onto municipalities of the ownership rights on street lighting systems) should be provided by the municipal budgets.
Projects in district heating systems
Under the conditions prevailing in Bulgaria the involvement of municipalities in the management and development of the systems for centralised district heating in population centres will be necessary and useful for the future development of this public service. What is more, the urgent realisation of this involvement is of vital importance for the very existence of the district heating systems. The strategy for development of district heating during the period 2000 – 2005 (approved by virtue of Decision No. 582 of 23 August 2000 of the Council of Ministers) envisages "negotiation of the mode of sharing the financial burden with the municipalities in the cities, in which district heating companies were in operation in 2001" as an important element of the indispensable restructuring. The strategy takes account also of the recommendations of the World Bank "to launch a procedure on privatisation and/or transfer onto municipalities of the ownership rights on district heating systems, for which state support has been suspended prior to 2004". Despite the provisions of these documents and although from a historical point of view municipalities have made significant investments in the development of the district heating networks in the population centres, all district heating companies, with the exception of Toplofikatsiya (District Heating) Sofia, continue to be fully state-owned.