1. Bulgaria Key Energy Challenges: Energy Efficiency Peter Johansen Senior Energy Specialist World Bank Presentation at Kapital Energy Conference Sofia, February 23, 2010

2. Key Energy Challenges 1.Tightening demand-supply balance –Economic crisis provided only temporary “relief” as demand declined while supply surplus has eroded 2.Gas supply security concerns –Ukraine-Russia gas crises demonstrated the vulnerability of the Bulgarian gas sector to external shocks 3.High energy intensity –Bulgaria is the most energy intensive country in the EU and in the Balkans. This hurts competitiveness 4. Underdeveloped regional energy market –Low electricity prices encourage wasteful energy use and discourage investments. Low gas penetration. Need for regional cooperation in gas transport and power trade.

3. Bulgaria’s Energy Intensity – Decreasing But not Fast Enough 3

4. Energy Intensity Comparison TPES/GDPTPES/PPP GDP Bulgaria1.190.31 Czech Republic0.640.23 France0.190.16 Germany0.170.15 Greece0.190.12 Italy0.160.12 Poland0.460.20 Spain0.200.14 United Kingdom0.140.13 Source: IEA, 2006 4

5. EE is Cost Effective CO 2 Abatement 5 Source : MCKinsey

6. Energy Efficiency – The Silver Bullet? EE sounds easy: –“Money lying on the ground”, “low hanging fruit”, “saves on energy bills and often provides greater comfort” But in practice it is not that simple: –Much of the energy efficiency potential remains untapped due to various barriers –“Money” continues to lie on the ground and “low hanging fruit” continues to hang! Despite years of efforts the EE potential is mostly untapped –Estimates of EE potential keep increasing instead of decreasing in many countries –Even the EU15 continue to have significant EE improvement potential (e.g., the EU 20% target) 6

7. Negawatts versus Megawatts Negawatts (avoided or saved capacity, whether in power, gas or district heating) are more valuable than Megawatts: –worldwide, 1 Euro invested in energy efficiency (NWs) avoids >2 Euros in capacity investment –they reduce local pollution and global greenhouse gas emissions, create more jobs NWs are also much cheaper than MWs on a life cycle cost basis, including investment and operating cost But NWs are more complex than MWs 7

8. Megawatts Negawatts 1-2 stakeholders (equipment supplier and electric utility) Multiple stakeholders (equipment supplier(s), electric utility, consumers, intermediares like ESCOs, etc.) One decision maker (generally the utility) Multiple decision makers (utility, millions of consumers, etc.) Asset-based deal; relatively simple. Financing straightforward Savings-based deal, hence requires pre- assessment (audits), measurement and verification,etc. Financiers hesitant Mature market (tested technologies, quality standards, etc. already in place for decades) Evolving market (standards may not exist, eg., CFLs, LEDs, product may not be available) Less sensitive to (subsidized) consumer tariffs Highly sensitive to (subsidized) consumer tariffs 8

9. EE in Bulgaria - Huge Investments Needed 9 0 500 1 000 1 500 2 000 2 500 Buildings State and Municipal Property Industrial Enterprises Public Transport Enterprises Apartments EUR million EE Investment Potential Accesible volume up to 2015 Estimated total volume Source: BEEF and EEA

10. Capitalization of Bulgarian EE Credit Lines in the Period 2005-2009 Credit lineFinancingBeneficiariesMillion EURO BEEFWB/GEF All sectors 11 Bulgaria EUEEFFEBRD/PHARE Industry 20 BEERECLEBRD/KIDSF Industry 160 REECLEBRD/KIDSF Individuals 51 EIB EERECLEIB/KIDSF Public sector Municipalities Industry 36 KIDSF (direct funding)KIDSF Public sector 15.7 Enemona EESFEBRD/Enemona Municipalities Industry 11.2 Total 304.9 10 Source: BEEF

11. Creating an Enabling Framework Gradually move all energy prices to full cost recovery level, while protecting the vulnerable groups Strengthening institutional framework for EE with capacity to formulate and implement EE policy Improving energy data system (EE indicators and benchmarking) Introducing long-term awareness campaigns and training programs for architects, contractors, equipment suppliers etc. 11

12. Carrots and Sticks Creating long-term subsidy and tax incentive/ credit schemes for EE investments in residential and SME sectors so consumers can count on it and plan ahead Mandate efficiency and service improvements on the side of the energy supply companies Setting and enforcing building codes and standards for appliances, industrial equipment, and vehicle fuel efficiency Mandate solar water heating in new public buildings 12

13. Leading by Example Public sector should be the first mover and lead by example with a comprehensive EE program, e.g.: –Gradually target EE upgrade of all public buildings before 2020 –This will boost the market for energy auditors, suppliers, and contractors (creates employment – green jobs) –Investment needs would be in the order of EUR 150-200 million per year –Green Investment Scheme revenues can be used to get started –Concessional funding (e.g. from EU) must be used leveraged with commercial finance –Gradually introduce market financing through energy service companies 13

14. Thank you! pjohansen@worldbank.org www.worldbank.org 14