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Annex I:
1. Broad Developmental Goals
The developmental goal being pursued is the provision of energy services to the country of Bulgaria. As a party to the UN FCCC, Bulgaria is interested in finding ways to ensure the provision of adequate energy services with a reduction in greenhouse gas emissions. The first communication of Bulgaria to the Conference of Parties to the FCCC placed a heavy emphasis on increasing the efficiency with which energy is utilized as a way to reduce GHG emissions without damaging the national standard of living.
2. Baseline:
To date, the Bulgarian energy sector has adopted a traditional supply-side approach--increasing the level of energy services available to the country through increasing supplies. In the absence of this project, some national and bilateral efforts to catalyze increased work on energy efficiency will be undertaken, but it will not be as systematic, comprehensive and effective as what is proposed under this project. EnEffect will continue with a small programme and several bilateral donors will also provide small grants for specific demonstrations. The money available through national energy taxes may or may not be funneled into energy efficiency investments.
The baseline for each subproject is discussed below.
3. Global Environmental Objective:
The global environmental objective being pursued is enhanced energy efficiency and the resulting reduction in GHG emissions. In the case of this project, there is a fertile ground for energy efficiency investments which is not being pursued further because of the existence of specific barriers to the implementation of these energy efficiency activities.
4. Global Benefits
The following sections summarize estimation of global benefits for specific energy efficiency demonstration subprojects. A few points require clarification in order to understand these calculations. In the case of the Bulgarian electricity system, virtually the entire base-load of the system is supplied by nuclear power plants. The peak load is provided either by hydro-electricity or thermal plants, depending upon the seasonal availability of the hydro. According to the Bulgarian energy commission and in accordance with the first communication to the Conference of Parties, electricity conservation reduces electricity derived from thermal sources. The GHG content of electricity saved, therefore, is taken as 0.00144 t CO2/kWh. For primary energy sources, the GHG content is taken as 3.1 t CO2/t heavy fuel oil; 3.0 t CO2/t diesel; and 0.6 t CO2/t lignite.
5. GEF Alternatives, Incremental Costs, and Global Benefits:
The project proposed for Bulgaria is designed to remove a number of specific barriers to enhanced energy efficiency investments and programmes. It is intended to implement a number of national-level activities designed to increased the capacity of Bulgarian nationals and institutions to carry out technical and financial work on energy efficiency. It also seeks to carry out demonstrations, incorporating demonstrations of cost-recovery and potential financing, in the areas of improved municipal street lighting, district heating renovation, and improved thermal performance of older buildings. Each project component is discussed below, including a detailed incremental cost matrix for each demonstration component.
Using Municipalities to Disseminate Energy Efficiency
6. Under the baseline situation, there are several barriers to the widespread dissemination of energy efficiency techniques relevant to the Bulgaria's regional headquarters which are mostly small and medium sized cities. These barriers can be identified as inappropriate municipal policies and legislation, no institutional capacity to manage energy at the local level, and no existing networks for the dissemination of information about energy efficiency initiatives.
7. The project aims to remove these barriers through developing a municipal network of energy efficiency officers based in the municipal administrations, first of Gabrovo and then, of other cities. The salaries of these officers will be paid by the municipality, but these costs should be compensated for by the energy savings resulting from the activities initiated. The experiences gained in Gabrovo will then be transferred throughout the network, which has been developed with support from US-AID. The network will then serve as the key to information sharing with respect to these activities.
8. The total cost of this project activity designed to remove these legal, institutional, and information barriers is US$ 1,230,000 million. Of this total, US$413,000 is being requested from GEF. The rest of the funding for this activity will be from Bulgarian sources and US-AID (Table 2).
Training and Education
9. At present, while there are many potentially profitable energy efficiency investments in Bulgaria, personnel at the local level do not have the experience of working on energy efficiency programmes, nor do they have received sufficient training to identify, evaluate, and finance energy efficiency projects. The necessary material to train these local professionals and technicians does not now exist in Bulgaria. Therefore, there is a barrier with respect to both limited human capacity to implement energy conservation projects at the local level and inadequate training materials to facilitate the implementation of these projects.
10. Under the project, this second subproject will address the training needs of the people at the municipal level who will be involved in energy conservation programmes. The project will first identify existing training needs, evaluate existing training materials available in other languages, and tailor these materials into a training package. This package will then be used for training in Gabrovo before being transferred for use in other Bulgarian cities.
11. The cost of overcoming this shortage of trained personnel and limited training material is estimated at US$657,000. GEF is being requested to pay US$327,000 of this total. The remainder of the funding is being provided by Bulgarian sources and US-AID parallel projects (Table 2).
Overcoming Financial Barriers
12. In the past, Bulgaria's economy was a state-operated monopolistic system where prices were fixed at a lower than world-market level and municipalities and firms received subsidies for their costs. As a result, there is no tradition or experience of financing energy-related activities and no experience of market mechanisms. This barrier even shapes the flow of information about potential cost reductions available through energy conservation. Business information about energy conservation and information about municipal investments are very limited.
13. The purpose of this innovative component is to facilitate wider financing of energy conservation efforts. This will include the development of a financing alternatives package focused on identifying options for business and industry at the municipal level. This information about financing options will also be developed into training packages which can be used in other contexts to inform interested business and municipal leaders about options to finance energy efficiency. It will also address directly the legal, policy, and institutional needs for a more active financing of energy efficiency investments.
14. The cost of undertaking this subproject aimed at limited information and familiarity with financing is US$423,000. Of this total, GEF is requested to provide US$255,000, and the remainder is being contributed by US-AID and Bulgarian sources (Table 2).
Energy Efficiency Improvement of City Street Lighting Systems
15. Traditional, relatively inefficient (and somewhat ineffective) street lighting is found through much of Bulgaria. In a market situation, the municipality would have the incentive to deploy the more efficient lighting and timing systems found throughout much of the rest of Europe. To date, these systems have not been deployed, partly due to the inability of municipalities to finance these improvements, partly due to the limited information about how to implement these retrofits, and partly due to the fact that the street lighting is the responsibility not of the municipality but of the electric utility. This element will help to overcome these barriers and provide a model demonstration which can serve as a guide to other cities.
16. The incremental costs for this subproject are summarized in Table I-1. Under the baseline, Gabrovo would replace the old sodium and mercury vapor lamps as they fail. At present, the bulbs frequently do not get replaced. The costs for this path of action come to about US$395,300. The costs of replacing all street lamps, installing net telecontrol systems, and installing electronic control systems comes to US$995,000. At economic price levels of US$0.052/kWh, there would be annual net savings to the municipality of approximately US$377,780 per year compared to the baseline. Over a six-year project lifetime and with a 10% discount rate, the incremental costs of the activity are negative, estimated at US$(-)622,260. When compared to the baseline situation, this subproject will result in the reduction of CO2 emissions by 10,462 tonnes/year. Over the course of six years, these emissions total 52,308 tonnes of CO2. There will also be a reduction in sulfur emissions as an indirect result of this component, but no economic value is assigned to this environmental benefit.
17. To overcome the barriers to implementation, GEF is being asked to provide US$246,000. The additional funding will be obtained from Bulgarian sources. As part of Subproject 3, financing modalities for the implementation of these street lighting retrofits will be developed for application in other cities.
Renovation of District Heating and End-Use System
18. At present, most of the district heating networks throughout Bulgaria are poorly operated and maintained because they rely upon outdated technology, the systems are heavily subsidized, and the users have no incentives to conserve. They also make limited use of metering: bills are currently based upon the cubic meters heated which is not an adequate measure consumption. This subproject will make limited, but carefully identified interventions in a district heating network in Gabrovo, to show how the system can be made more efficient, and more effective at a lower cost. It will also address issues relating to metering, tariffs, and consumption-based billing.
19. Under the baseline, the costs would entail the annual repair and reconstruction of the Heat Generating Plant and the replacement of worn-out steam mains. The total costs of these activities over the life of the project come to US$786,500. Under the project being proposed, a number of measures would be undertaken simultaneously in the heat generation system, the transmission and distribution system, and the end-user system. The total present value of these interventions comes to US$2,234,000. The gross incremental costs of this intervention are therefore, US$1,447,500. Given the value of the potential energy savings estimated at US$401,035 per year, the net incremental costs are estimated as being negative US$ (-)526,153. Compared to the baseline situation, there will be a reduction of CO2 emissions by 11,355 tonnes/year through the implementation of this subproject, or nearly 50,000 tonnes over the lifetime of this project. In addition to these global benefits, there will be additional benefits in the form of reduced sulfur emissions. There is no economic value assigned to these additional benefits.
20. GEF support is requested for US$295,000 as the necessary component to carry out the technical assistance work to prepare for the actual investment. Additional funds will be obtained from Bulgarian sources and an EBRD credit.
Retrofit of Existing Buildings to Reduce Energy Use
21. Although building standards and codes have been established for new construction and renovated buildings, Bulgarian building stock is relatively old and inefficient in energy terms. At present, there is a need to demonstrate the potential energy and economic savings from building retrofits. This element will provide technical assistance to demonstrate the economic potential of building retrofits using one hospital, one school, one multi-family residence, and one industrial building.
22. For the incremental cost table (Table I-3), the case of the hospital has been taken as demonstrative (US-AID is supporting the hospital demonstration). The baseline costs involve merely maintaining the current system at adequate performance levels for a total of about US$173,000. The alternative will involve retrofitting the building for a total of US$560,800. Over 10 years (at 10% discount rate), the energy savings are estimated at about US$111,900 per year. The gross incremental costs come to US$387,800 and the net incremental costs come to US$(-) 156,976. As energy prices continue to rise to world levels and the retrofits to the building last longer than ten years, the economic effects of the project will be much greater than those analyzed in the proposal. When compared to the baseline situation, this subproject will result in a reduction of CO2 emissions by 1743 tonnes/year. Additional benefits will involve a reduction of sulfur emissions and improvements in the comfort of building inhabitants.
23. GEF support is requested for US$261,000 which will cover technical assistance costs to prepare the retrofit plans and to share the results with other cities. Additional support for this activity is expected from Bulgarian sources, US-AID, PHARE, and possibly JICA.
Project Management
Annex III, List of Supporting Letters Available Upon Request
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