Building Energy Efficiency - challenges and opportunities for EBRD Peter Hobson European Bank for Reconstruction and Development

| 1 Outline EBRD Sustainable Energy Initiative Sustainable energy financing in the building sector - constrains and opportunities Bank’s operations in the sector

| 2 EBRD Sustainable Energy Initiative (SEI) Overview Scale up EBRD sustainable energy investments to €1.5 billion Strengthen the EBRD capacity to scale up delivery and “mainstream” climate and energy efficiency across the Bank’s operations Expand the market for sustainable energy technologies in the region SEI Phase 2 Targets (2009 – 2011) ▪ EBRD SEI financing: €3 to 5 billion (total project value of €9 to15 billion) ▪ Carbon emissions reduction: 25 to 35 million tonnes CO2/annum ▪ TA grant funding mobilisation: €100 million, Investment grants – €250 million The SEI responds to the specific needs of the energy transition in the EBRD region, as well as to the call of the G8 at the 2005 Gleneagles Summit for the IFIs to scale-up climate change mitigation investment. SEI Phase 1 ( ) was launched in May 2006 with the objectives to:

| 3 1. Industrial Energy Efficiency 4. Renewable Energy Scale-up 2. Sustainable Energy Financing Facilities 5. Municipal Infrastructure Energy Efficiency 3. Power Sector Energy Efficiency 6. Carbon Markets Development SEI Results 3 SEI Results (YTD): – EBRD SEI investments of € 4.6 billion for total project value of over € 23 billion –Investments in 266 projects and 27 countries – EBRD SEI financing account on average for 20% of the Bank’s total investment – Annual emission reduction of 29 million tons of CO 2

| 4 Buildings – the largest and the most cost effective carbon abatement opportunities SOURCE: 1- McKinsey Global Institute, 2007

| 5 Buildings – how the Bank responds? Building EE as one of new priority areas under SEI- Phase 2; High level support; Financing models available; Technical assistance: professional consultants, training and capacity building TCs, dedicated marketing; Maintaining Policy Dialogue (policy&regulatory barriers); Low energy properties financed – a driver toward capacity building and expanding market for EE techniques;

| 6 Barriers to sustainable energy financing for banks Similar in all the countries in the region : ▪ Uncertainties about market demand for EE financing ▪ High transaction costs ▪ Liability of stakeholders ▪ Legal enforcement in the property and residential sector ▪ Lack of technical expertise for appraisal and risk assessment ▪ Information asymmetries and misconceptions about the technical risks and financial benefits of energy efficiency ▪ Lack of specific structures for implementation ▪ No specific marketing tools or budget allocated for such activities ▪ Tenors needed longer than those of commercial business lending

| 7 Institutional and regulatory barriers Insufficiencies of housing legislation: ▪ Legal statute of associations of apartment owners; ▪ Responsibilities and legal liabilities of Associations; ▪ Management of Associations ▪ Decision making procedures ▪ Relationship with management companies and utilities Insufficiencies of building regulatory ▪ Lack of energy performance classification ▪ Lack of energy certification scheme ▪ Structure and complexity of energy efficiency requirements ▪ Lack of institutionalised energy assessment procedures ▪ Insufficient institutional framework supporting energy performance assessment

| 8 EBRD integrated approach Tailor made financing vehicles reflecting country and market specifics: ▪ REECL-type (Bulgaria); ▪ SlovSEFF type (Slovakia) Capacity building: local banks, technical consultants & engineers, local authorities Awareness raising: general public, project stakeholders, authorities Corporate sector: technology and service providers, utilities, project developers; Policy dialogue: assistance on development/upgrade of supportive legal and regulatory framework: ▪ Secondary legislation on EE of buildings: Russia ▪ Law on Energy efficiency of buildings (Moldova, Kyrgyzstan) ▪ Regulations, technical reglaments, ministerial decree/ordinances (Ukraine, Moldova, Kyrgyzstan); ▪ Sustainable Energy Action Plans (Kazakhstan, Moldova, Russia, Ukraine, Turkey) High leverage of national (Donor funded) support programs;

| 9 EBRD Financing mechanisms (1) REECL – type: addressing dwelling level EE (apartments, family houses) EBRD Participating Banks Sub-Borrower Project Consultant € Credit Line € Loan Agreement ConfirmsSub-Project compliance; Verifies implementation Support Program Funded Contract Training And Marketing Support Financing disbursed: € 43 million (Oct. ‘05–Jan.’10) Leverage of technical assistance to total investments is 31.6 Leverage of incentives to total investments is 5.9 Number of projects: 28,125 (ab. 7,000 per year) Number of residents affected with improved housing conditions: 69,100 Financial revenues from energy savings: € 10.6 million per year Energy savings: GWh per year Energy generation capacity substituted: 19.1 MW Carbon reductions: 170,530 tons CO2 per year

| 10 EBRD Financing mechanisms (2): REECL market penetration rate High performing (eligible) technologies Share funded by REECL EE Windows;Close to zero=> 4% 30% High grade insulation (roof, wall, floor);Close to zero=> 3% 18% Efficient Gas boilers and associated heating systems;Close to 45%=> 78% 13% Biomass Boilers and StovesClose to 30% =>40% 6% Solar Water HeatersClose to 8%=> 14% 34% Heat Pump Heating (air-to-air)Close to 5%=> 25% 18%

| 11 EBRD Financing mechanisms (3) REECL 2 – type: addressing both dwelling as well as building level EE (groups of residents, informal associations, associations as legal entities, ESCOs, management companies, construction companies) Accent on promotion and support of Housing Associations: ▪ Legal advise; ▪ Standard set of institutional/management documentations ▪ Conceptual design for complex building refurbishment; ▪ Attendance on General Meetings when decisions on refurbishment made; Wider spectre of eligible techniques (gasification, photovoltaics, heat recovery mechanical ventilation in addition); No incentives for participating banks; High performance requirements of eligible techniques; Variable incentives for different categories of Borrowers and per type of projects

| 12 Financing mechanisms (4) SlovSEFF – type: addressing complex building refurbishment through financing housing associations (adequate housing legislation required) EBRD Participating Bank Sub-Borrower Independent Energy Expert Consultant € Credit Line € Loan Agreement Technical Assistance Energy Audits Implementation Verification Training And Marketing Support EBRD Participating Bank Sub-Borrower Independent Energy Expert Consultant € Credit Line € Loan Agreement Technical Assistance Energy Audits Implementation Verification Training And Marketing Support Support Program Funded Contract Support Program Funded Contract

| 13 SlovSEFF results Financing disbursed: € 38 million ( ) Leverage of technical assistance to total investments is 32 Leverage of incentives to total investments is 7.4 Number of projects: 218 apartment buildings (12,000 apartments) Number of residents affected with improved housing conditions: 25,000 Financial revenues from energy savings: ab. € 3.2 million per year Energy savings: 55 GWh per year Carbon reductions: 28,400 tons CO2 per year

| 14 Commercial buildings: Case Study – Pulkovo Airport (Russia, 2010)  Total investment costs of € 1,236 M for extension of air fields, refurbishment of existing and development of a new Terminal  The EBRD arranged an energy audit with cost benefit analysis and recommendations  The airport operator FRAPORT incorporated recommendations in the Project EBRD finance: €120 M, including €17.2 of energy efficiency investments ▪ Advanced thermal protection of all building premises ▪ Implementation of advanced HVAC (heat recovery, VSD fans&pumps, etc) ▪ Integrated Building Management System ▪ Small-scale gas turbine CHP: 7 MW and absorption cooling: 5.8 MW ▪ Snow harvesting and biogas plant still under consideration ▪ Energy/carbon savings: 42,120 MWh/ 12,396tCO2

EPC Programme Outline Aim to support development of public EPC market in CEE and CIS, initially: Russia, Ukraine, Romania and Bulgaria Use initial TA to assess market and identify main obstacles Implement capacity building programme to support cities, ESCOs and banks Provide initial financing through local authorities or dedicated funds

Status – Russia and Ukraine Completed studies in Russia and Ukraine of scope for EPC inlcuding market assessment and analysis of legal framework. Conclusion: it can be done! Advising Russian government on dedicated EPC legislation in energy efficiency law (261-FZ) and need for amendments in related legislation (budget code and procurement law) Funding in place ($10m from GEF) for broad capacity building programme to help Russian cities prepare EPC tenders Working with Ukraine cities to provide municipal loan to finance initial EPC programme combined with similar capacity building support

Status – Romania and Bulgaria Market studies to be completed end Initial indications positive Funding in place in Romania ($5m, GEF) and Bulgaria (€5m KIDSF) for capacity building and municipal support TA programme Discussions with public energy efficiency funds (BEEF and FREE) to recapitalise for funding EPC contracts through purchase of receivables Directly financed private sector ESCOs also being prepared

| 18 Conclusions ▪ High level support on financing EE is present at EBRD; ▪ Policy dialogue between EBRD and the national Governments needs to result in concrete outputs; ▪ Resources, experience and mechanisms of financing EE available at EBRD; Thank you!