Energy Efficiency in District Heating and Joint Implementation

Energy Efficiency in District Heating and Joint Implementation Mark van Wees CAP SD Energy and Climate Consultants Moscow, 21 -23 August 2006

District Heating Market Share Source: IEA

Energy Efficiency in District Heating Source: IEA

Performance indicators

1. Promotion of energy efficiency in district heating systems in the EU · Standards and certification – Regulation of boiler efficiency – Energy audits and certification · Benchmarking – Energy efficiency benchmarking in tariff system – Voluntary programmes · Tax incentives – Investments in energy efficiency · R&D · Best practice programmes – Benchmarking, technical expertise, auditing · Financing (by governments) – Project preparation grants and investment subsidies – Guarantees – Carbon financing

Share of cogeneration Source: IEA

2. Promotion cogeneration in the EU · Fair market conditions (cost sharing between electricity and heat) · Bonus payments and feed-in tariffs · Subsidies/grants for new capacity · Tax incentives – Investments in energy efficiency · R&D · Best practice programmes – Benchmarking, technical expertise, auditing · Financing – Project preparation grants and investment subsidies – Guarantees – Carbon financing (Joint Implementation)

3. Promotion of energy efficiency in end-use of heat (buildings) in EU · · · Metering and control Building energy codes Energy audits and certifications Information campaigns Tax incentives – Investments in energy efficiency · R&D and best practice programmes – Benchmarking, technical expertise, auditing · Financing – Project preparation grants and investment subsidies

Ton CO 2 e/yr Joint Implementation Baseline emissions ERUs Project emissions 2008 2012 time

Examples JI Projects in District Heating (approved and contracted) · Bulgaria (cogeneration) – CHP Portfolio: gasturbine + gasengines ( replacing heat only boilers) – Extension DH network · Romania (boiler efficiency) – Increase boiler efficiency at coal fired CHP plant · Romania (reduction heat losses) – Replacement secondary distribution network – Replacement heat exchangers in substations · Poland (renewable energy) – Feed-in geothermal energy in district heating replacing coal -fired

Energy efficiency with the context of district heating reform Source: IEA

Carbon Market 2004 -2005 Source: Point. Carbon “Carbon 2006

Austria Netherlands ECF Worldbank Finland Kf. W EBRD Belgium Standard Bank TGF Sweden Denmark JCF-JBIC NEDO IFC

Categories of Buyers 1. Government: buy for Kyoto compliance / risk averse / inflexible in transaction / passive approach to project identification / tenders 2. Private sector: buy for compliance EU ETS / some flexibility in transaction / medium risk / direct project-byproject approach in purchasing 3. Banks/funds/traders: buy for trading / can serve different buyers / balancing risk versus profit / flexible transactions and price structures / active approach to project identification

Two typical buyers in Russia · Passive buyer: – Now waits for certainty on JI infrastructure (Lo. A) – Limited presence in Russia – New proposals in Russia on the shelf or treated with care – Examples: Belgium, Netherlands · Active buyer: – Invests in new project identification and development – Willing to pursue (conditional) transactions – Strong presence in Russia (agents, existing network) – Examples: EBRD, Denmark, traders

Differences between buyers? · · · · Interest in Russian market Volume to be purchased Preferred/eligible projects Risk profile Price and other transaction terms Flexibility in contract terms Support in project development – financial, technical, moral · Combination with project finance

International Financing Schemes offering project+carbon financing · World Bank (IFC) · European Bank for Reconstruction and Development (EBRD) · European Investment Bank (EIB) · Nordic Environment Finance Corporation (NEFCO) + Private sector schemes

How to select a buyer? · Status of your project (initial idea or fully developed)? · Your capacity in project development? Required technical and financial support? · Small-scale project? Others? · Combination with project financing necessary? · Risk profile project and host company? · Financial objectives (revenues, price, upfront payments, etc. )?

Marketing your project · · · Market research and orientation Shortlist of buyers Non-exclusive initial discussions with buyers Exclusivity and compensation preparation costs Preparation documentation (PDD) Negotiations on transaction Ø Emission Reduction Purchase Agreement

Finding the right buyer · · New buyers still arrive Others may change their strategy in Russia Some may even leave again New mechanisms in the future Study the market and shop around!

Conclusions · Increasing energy efficiency in district heating is important for economic, social and environmental reasons · Potential JI is substantial and demand is still growing · Decision of the Russian government on JI badly needed · Active involvement of the district heating sector in the national and international debate on JI is very important (e. g. National Program) !