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(project cost US$423,000; requested GEF funding US$ 255,000)
Objectives
(a) Develop business infrastructure and market conditions for environmental and energy efficiency actions;
(b) Develop and examine in the demonstration subprojects cost recovery mechanisms for energy efficiency measures;
(c) Assist businesses interested in joint ventures between Bulgarian and foreign companies in the field of energy efficiency and GHG emission reduction, including energy saving companies (ESCOs), and energy performance contracting (EPC).
Description
22. The project will focus on municipal and budgetary benefits and financial opportunities for energy efficiency. Evaluation of costs and savings, including revenue impacts and tariff issues and developing and examining cost recovery mechanisms for the demonstration energy efficiency measures will be done. Financing problems, identified in the demonstration projects, will be analyzed and alternative decisions proposed. Financial mechanisms will be developed and tested. The goal is to provide for financial sustainability of energy efficiency projects. Financing alternatives will be looked for in:
(a) Establishment of a national energy tax to capitalize the National Energy Efficiency Fund;
(b) Retainment of the subsidies to amortise the loan/investment;
(c) Influence the mechanism for subsidizing energy prices and introducing demand side incentive programs;
(d) Strengthen municipal fiscal autonomy to tax and/or issue debt;
(e) A national loan backed by the EBRD;
(f) Privatize the entity/operation and direct bill;
(g) Seed the National Energy Efficiency Fund from other sources, for example the World Bank;
(h) others.
23. Illustrative energy performance contracting (EPC) mechanisms will be stimulated in parallel with the demonstration subprojects and used to demonstrate the mechanisms and financial returns of performance contracting. Model contracts will be developed to serve as the basis for further demonstration projects that use independently financed performance contracting.
24. The awareness of business opportunities in the field of energy efficiency is very limited at the municipal and national level. The business, industry, and financial sectors are not familiar with the potential of the field. The number of joint ventures with western countries is limited. To overcome this barrier, this project will actively promote awareness of these business opportunities, assist Bulgarian enterprises develop Western-style business plans, work with officials in Gabrovo and other municipalities to create attractive business environments, and provide workshops and clearinghouse functions.
25. The Support Office will prepare a guidebook for municipalities seeking to encourage investments in energy saving products and services. The guidebook will describe the role of joint ventures, ESCOs and EPC programs, and other financial mechanisms. A workshop using this information will be pilot tested in Gabrovo, revised, and presented to other municipalities. A clearinghouse will be created to bring potential borrowers and lenders together. The clearinghouse will provide current information on the lending requirements and interests of available financing sources. Enterprises seeking funds for energy efficiency investments will be able to obtain this information and advice on different financing options and how to meet their requirements. The demonstrations will be used as case studies for this process.
26. Drawing on the information from the above activities, the Support Office will work with Gabrovo and other municipalities to prepare a draft report, "Model Policies and Legislation for Municipalities Seeking Energy Efficiency Investments". (The report will be a companion to the report, prepared under Subproject 1, which addresses issues other than financing.) The report will review existing regulations and practices that affect the business climate for energy efficiency in municipalities, such as taxation and fees, budget regulations, liability, security, labour practices, and other conditions that are important to potential investors. As part of this report, recommendations for creating legal conditions for using new sources of financing, including energy taxes, user fees, energy efficiency funds, and municipal guarantees, will be directed to the national legal framework.
Transaction Barriers
(a) Due to the state monopoly in the past on the production, transfer and distribution of energy, there is very limited experience with the application of market mechanisms to achieve energy efficiency and environmental objectives.
(b) Due to the underpricing of energy in the past, there is little understanding of the potential for increased energy efficiency, including a shortage of information about new energy saving technologies.
(c) Business knowledge and experience regarding financing mechanisms is lacking, particularly on foreign resources, such as joint ventures, ESCOs, and international financial institutions and a lack of experience in developing bankable projects for energy efficiency.
(d) There is little understanding of the municipal environment required to attract investments, including legislative and regulatory measures, taxation and fee structures, utility infrastructure requirements, and labor and social expectations.
Outcomes
(a) Production of a financing alternative packages designed to meet the requirements of the business and industry community at the municipal level, including financing options, which are designed to reduce GHG emissions. Training programs using these materials.
(b) A Clearinghouse that proactively brings together municipal entrepreneurs with national and international funding sources.
(c) A stronger local market for energy efficient services and products created by new financing options and a more inviting legislative and regulatory environment;
(d) Recommendations for creating legal background for stimulating energy efficiency investments.
SUPPORTING DEMONSTRATIONS
27. These demonstration projects have been designed to provide experience in achieving energy savings and in reducing GHG emissions. The criteria used to select and design the demonstrations include: 1) Significant potential for energy savings and/or GHG reductions; 2) Widespread applicability throughout Bulgaria; 3) Cost-effectiveness when replicated widely; 4) Minimal risk through a reliance on proven technologies; 5) The achieving of additional social benefits; and 6) Coordination with on-going projects of other programs--PHARE, US AID, Novem, etc.
Training and Education
Energy Efficiency Improvement of City Street Lighting Systems
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