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Improving energy efficiency in municipal sectors—municipal buildings, public lighting, water supply and sanitation, heat and power, public transport, and solid waste—is one of Ukraine’s energy challenges, but municipalities in Ukraine have so far been unable to scale up energy efficiency investments due to legal, financial, and regulatory constraints.
The World Bank’s Energy Efficiency Transformation in Ukrainian Cities technical assistance project, supported by the Energy Sector Management Assistance Program, and USAID’s Municipal Energy Reform Project convened a joint conference—"Project Development, Financing Opportunities and Further Cooperation"—on October 6, 2015.
The World Bank team presented the results of the project, including lessons learned from assisting 3 cities in preparing their energy efficiency transformation programs as well as recommendations from the newly released policy note, “Ukraine: Facilitating Municipal Energy Efficiency Finance.”
Ukraine had long served as an important industrial center in the former Soviet Union—made possible by a relative abundance of resources in the Soviet Union and state control of energy prices. Today, all that remains of its inheritance is one of the most energy-intensive economies worldwide (Ukraine’s energy intensity is three times the EU average), along with heavily subsidized energy consumption (subsidies cost about 7 percent of GDP in 2014) and a dependence on gas imported from Russia.
About 60 percent of Ukraine’s population lives in urban areas. Ukrainian cities inherited energy inefficient assets from the Soviet time that were designed for low-cost energy use but have become dilapidated due to lack of maintenance and capital for modernization. Energy inefficiency translates into fiscal burdens on central and local budgets through subsidies, low operational efficiency, and poor quality of municipal services.
Launched in September 2014 with Energy Sector Management Assistance Program (ESMAP) support, the City Energy Efficiency Transformation Initiative (CEETI) technical assistance project in Ukraine has three main objectives: assist the cities of Kiev, Ternopil, and Kamenets-Podolsky to efficiently plan and implement sustainable urban energy efficiency investment programs; identify bankable municipal energy efficiency subprojects in these partner cities for private and/or public financing; and share and disseminate the experiences and lessons learned with other cities in Ukraine. As of September 2015, the project had completed activities under its first two objectives.
During its implementation, the CEETI project collaborated closely with USAID’s Municipal Energy Reform Project (MERP), which has been assisting 17 Ukrainian cities in end-use energy efficiency, energy planning, and the use of clean energy and renewable energy resources. The joint conference on "Project Development, Financing Opportunities and Further Cooperation," convened by ESMAP and MERP on October 6, 2015, was a deliberate effort by both projects to exchange ideas and experiences among the broad municipal energy efficiency stakeholder community. Over 90 participants gathered in Kiev to synergize efforts, share good practices, and promote financing of municipal energy efficiency projects. The participants came from the 17 project cities as well as 8 cities under the Covenant of Mayors—a European movement for sustainable cities—the Ministry of Regional Development, the State Agency on Energy Efficiency and Energy Saving, and a number of other donors such as the European Bank for Reconstruction and Development, the Nordic Environment Finance Corporation, and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ).
Scaling up energy efficiency investment is a priority for the Ukrainian Government, but municipalities have found it difficult to address. At the conference, presentations by local law firms touched upon a number of recent legislative developments that aim to facilitate municipal energy efficiency. Notably, Law #327-8 allows municipalities to enter into contracts with energy service companies (ESCOs) for investments in energy efficiency measures that are paid through cash flows from future energy savings. Previously, legal provisions did not allow municipalities to retain those savings and, hence, incentives for investments in energy efficiency did not exist. Now, municipalities have an opportunity to realize some budget relief.
“Ukraine’s recent energy and subsidy reforms not only made municipal energy efficiency investments more urgent and appealing but also paved the way for introducing financing and delivery mechanisms that were not feasible before,” said Tamara Sulukhia, World Bank’s Program Leader for Sustainable Development for Ukraine, Belarus, and Moldova. “The joint conference was timely and useful in sharing new insights from recent efforts by cities, national government, and their development partners. The cities appreciated the opportunity to learn from their peers and have direct dialogue with the national government and international development organizations.”
For its part, CEETI has been helping three Ukrainian cities analyze their energy consumption using ESMAP’s Tool for Rapid Assessment of City Energy (TRACE), which identified municipal buildings as the top energy efficiency investment priority of city authorities. The World Bank team presented lessons learned from using TRACE in Ukraine and improvements made on TRACE through its recent update. The team also shared the newly completed policy note, Ukraine: Facilitating Municipal Energy Efficiency Finance, which called for major efforts by the national government to establish a national financing mechanism for municipal energy efficiency investment, especially in municipal buildings, either through an energy efficiency revolving fund or a national ESCO.
As part of its dissemination effort, CEETI plans to train 50 to 60 city officials through the Association of Energy Efficient Cities of Ukraine on the deployment and use of TRACE to help quickly identify potential energy efficiency improvements, target underperforming sectors, and prioritize interventions. The CEETI team is also working with the City of Ternopil to establish a municipal ESCO and a revolving fund for energy efficiency investment. Ternopil’s efforts may provide additional impetus for further city-led municipal energy efficiency initiatives. The Ukraine CEETI technical assistance project is expected to be completed by the end of April 2016.
Presentations from the conference (in Ukrainian) can be accessed through http://www.merp.org.ua/index.php?lang=us.