Energy Efficiency in District Heating and Joint Implementation Mark van Wees CAP SD Energy and Climate Consultants Moscow, 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

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

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 Source: PointCarbon “Carbon 2006”

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

Categories of Buyers  Government: buy for Kyoto compliance / risk averse / inflexible in transaction / passive approach to project identification / tenders  Private sector: buy for compliance EU ETS / some flexibility in transaction / medium risk / direct project-by- project approach in purchasing  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 (LoA) –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  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) !